The Cost of Privacy Failures: Evidence from Bank Depositors’ Reactions to Breaches

40 Pages Posted: 7 Jul 2020

See all articles by Christian Engels

Christian Engels

University of St Andrews - School of Management

Bill Francis

Rensselaer Polytechnic Institute (RPI) - Lally School of Management & Technology

Dennis Philip

Durham University - Department of Economics and Finance

Date Written: June 12, 2020

Abstract

This paper provides novel evidence that consumers react in response to privacy breaches, where personally identifying information and financial data are exposed to unauthorized parties with criminal intentions. Exploring privacy breach incidences of U.S. banks, we reveal that depositors reallocate significant wealth holdings away from breached banks (estimated at around $229 million on average in the four quarters following a privacy breach). Breached banks' deposits decline steadily after privacy breaches and do not return to the pre-breach deposit growth path even after a year. Depositors domiciled geographically closer to the breached bank's headquarters react less starkly. To counteract the depletion in deposits, breached banks sharply increase money market deposit rates just after breach incidences. The results highlight the real cost of privacy breaches for corporations.

Keywords: privacy, cyber-security, data breaches, banks, deposit institutions, depositors

JEL Classification: G21, D14, D18

Suggested Citation

Engels, Christian and Francis, Bill and Philip, Dennis, The Cost of Privacy Failures: Evidence from Bank Depositors’ Reactions to Breaches (June 12, 2020). Available at SSRN: https://ssrn.com/abstract=3625668 or http://dx.doi.org/10.2139/ssrn.3625668

Christian Engels

University of St Andrews - School of Management ( email )

St Andrews, KY16 9AL
United Kingdom

Bill Francis

Rensselaer Polytechnic Institute (RPI) - Lally School of Management & Technology ( email )

110 8th St
Troy, NY 12180
United States

Dennis Philip (Contact Author)

Durham University - Department of Economics and Finance ( email )

Department of Economics and Finance
Mill Hill Lane
Durham, DH1 3LB
United Kingdom

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