Insider Trading Ahead of Cyber Breach Announcements

Abstract

Stock market reactions to cybersecurity breach announcements are generally negative. In virtually all cases, information asymmetry exists between firm management and investors between the date of cybersecurity breach discovery and the public announcement of the breach. We find significant evidence of opportunistic insider trading, with insiders saving an average of $35,009 due to their timely selling in the three months prior to the announcement of a cybersecurity breach. Late filing violations by insiders, which are indicative of stealth trading, are more likely to occur near the announcement of a cyber breach. We also find that the bulk of opportunistic trading tends to occur 55 to 72 days before the public announcement. The results lend support to the SEC’s recently announced goal of tightening restrictions on insider trading ahead of cyber breach announcements, and we make several policy recommendations based on our findings.