The impact of adoption of identity theft countermeasures on firm value

Abstract

Identity theft poses a huge threat to the e-commerce community. Although the crime is a growing menace, firms are uncertain about the payoffs obtained from adoption of identity theft countermeasures. As the cost of implementation of relevant countermeasures is high, senior managers are hesitant to make such investments. Using the event study method, we empirically demonstrate that it is worthy for a firm to adopt such countermeasures. We show that the news of such adoption increases the short term market value of the announcing firm by 0.63% on an average. Our research also finds that early adopters, adopters of sophisticated identity theft countermeasures, firms with high growth potential, and firms with high credit rating show a strong and positive return in market value, whereas small firms demonstrate a moderate but positive reaction. As shown in our research findings, the market rewards early adopters of security technology and adopters of sophisticated measures greatly. To reap the market premium, the industrial practitioners should adopt newer identity theft countermeasures at an earlier time. Furthermore, our study shows that investors reward growing firms and small companies more if they adopt the countermeasures. This shows that the market views the investment in anti-identity theft as a tool to enhance competitive advantage. Our research findings should encourage firms to adopt identity theft countermeasures more proactively.