Short Selling Surrounding Data Breach Announcements
41 Pages Posted: 9 Apr 2020 Last revised: 3 Dec 2020
Date Written: December 2, 2020
This study examines whether short sellers detect firm-level data breaches. Using proprietary daily lending data and unique data breach announcements, we investigate whether short selling anticipates prior to corporate data breaches and how it behaves in time leading up to announcements. Using a unique experimental setting of data breaches, we document an abnormal level of short-selling costs when a firm announces a data breach. Second, the results of our event studies report signicantly negative cumulative abnormal returns (CARs) around data breach announcements. On a cross-sectional basis, we find that short-selling activities strongly correlate with CARs. Furthermore, we provide evidence that short-selling activities improve market quality and price discovery. Overall, our study provides strong evidence that short sellers exploit prior knowledge of data breaches and play a positive role in capital market.
Keywords: informed knowledge, short selling, data breaches, cumulative abnormal returns (CARs), market quality, price discovery
JEL Classification: G14, K24
Suggested Citation: Suggested Citation