How does cyber crime affect firms? The effect of information security breaches on stock returns

A widely debated issue in recent years is cyber crime. Breaches in security of accessibility, integrity and confidentiality of information involve potentially high explicit and implicit costs for firms. This paper investigates the impact of information security breaches on stock returns. Using event-study methodology, we provide empirical evidence on the effect of announcements of cyber attacks on the market value of firms from 1995 to 2015. We show that substantial negative market returns occur following announcements of cyber attacks. We find that financial entities often suffer greater negative effects than other companies. We also find that non-confidential cyber attacks are the most dangerous, especially for the financial sector. Our results seem to show a link between cyber crime and insider trading.