The Long-Run Impact of Information Security Breach Announcements on Investors’ Confidence: The Context of Efficient Market Hypothesis

Syed Emad Azhar Ali,Muhammad Kashif Shad,Fong-Woon Lai,Rohail Hassan

doi:10.3390/su13031066

Syed Emad Azhar Ali, Muhammad Kashif Shad + Show 2 more

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https://doi.org/10.3390/su13031066

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Abstract

Information and communication technologies (ICTs) are the cornerstone for sustainable development, but if they are not appropriately managed, they will impede progress towards the United Nations Global Sustainable Development Goals. Among undesirable impacts, emphasis must be put on the risk of information security (ISec) breaches, as they pose a potential threat to businesses there. Especially for publicly traded firms, they could create a long-lasting influence on their financial performance and, thus, stock investors’ confidence. Following the efficient market hypothesis’s footsteps, previous studies have examined only the short-run impact on investors’ confidence ensuing to ISec breach announcements. Therefore, this study investigates the long-run impact of ISec breach announcements on investors’ confidence. Based on a sample of 73 ISec breach announcements during 2011–2019, this paper examines the impact on investors’ confidence, as demonstrated by long-run abnormal returns and equity risk of those firms. Using a one-to-one matched sampling approach, each firm’s performance is analyzed with its control firm over eighteen months, starting six months before the announcement, through twelve months after the announcement. Firms experienced a significant negative abnormal return of 15% to 18% during the twelve months following the breach announcement. In comparison, equity risk increased by 11% within six months before and after an announcement. This study can help investors, managers, and researchers better understand a long-term relationship between ISec breaches and investor confidence in the context of efficient market hypothesis.

Highlights

In an attempt to accomplish many of the Sustainable Development Goals (SDGs) adopted by the United Nations General Assembly in September 2015, as SDG 9 (“Industry, Innovation and Infrastructure Development”) and SDG 17 (“Revitalize the Global Partnership for Sustainable Development”), the adoption and development of information and communication technologies (ICTs) is essential for businesses and, from a macro-economic perspective, is crucial
Using abnormal stock returns volatility as a proxy for equity risk, the findings indicated that the breached firm, as compared to its matched control firm, will be confronted with an 11% higher equity risk over six months before and after the announcement
This paper addresses the challenges of information security (ISec) confronted by firms, which could hurt sustainable economic growth

Summary

Introduction

In an attempt to accomplish many of the Sustainable Development Goals (SDGs) adopted by the United Nations General Assembly in September 2015, as SDG 9 (“Industry, Innovation and Infrastructure Development”) and SDG 17 (“Revitalize the Global Partnership for Sustainable Development”), the adoption and development of information and communication technologies (ICTs) is essential for businesses and, from a macro-economic perspective, is crucial. Digitalization is gradually being demonstrated as a crucial element for sustainable development for these reasons [5,6]. Safety and security are crucial within cyberspace for innovations to deliver their developmental impact effectively. ICTs can accomplish the 2030 SDGs of the United Nations, but at the expense of information security (ISec) risk management [2,3,7]. ICTs can accomplish the 2030 SDGs of the United Nations, but at the expense of information security (ISec) risk management [2,3,7]. 4.0/).

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