Do Data Breaches Damage Reputation? Evidence from 43 Companies Between 2002 and 2018

23 Pages Posted: 5 Jun 2020 Last revised: 5 May 2021

See all articles by Christos Makridis

Christos Makridis

Stanford University; Arizona State University (ASU); Massachusetts Institute of Technology (MIT) - Sloan School of Management; Department of Veterans Affairs (VA)

Date Written: May 9, 2020

Abstract

While data breaches have become more common, there is little evidence that companies that incur them experience a persistent decline in financial performance or security prices. Using new firm-level data between 2002 and 2018, this paper finds that firms experience a 26-29% increase in intangible capital following an average data breach. However, the largest and most salient breaches are associated with a 5-9% decline in intangible capital following a data breach. These effects are concentrated among firms in consumer-facing industries: smaller (larger) data breaches are associated with more positive (negative) effects on intangible capital. These results suggest that current regulatory guidance may not provide complete incentives for firms to invest in cybersecurity capabilities, particularly for small to medium size breaches.

Keywords: Brand, Cyber-security, Data Breach, Intangible Capital, Reputation

JEL Classification: D91, G41, H56, L21

Suggested Citation

Makridis, Christos, Do Data Breaches Damage Reputation? Evidence from 43 Companies Between 2002 and 2018 (May 9, 2020). Available at SSRN: https://ssrn.com/abstract=3596933 or http://dx.doi.org/10.2139/ssrn.3596933

Christos Makridis (Contact Author)

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