Social media and stock price reaction to data breach announcements : evidence from US listed companies

Rosati, Pierangelo and Deeney, Peter and Cummins, Mark and van der Werff, Lisa and Lynn, Theo (2019) Social media and stock price reaction to data breach announcements : evidence from US listed companies. Research in International Business and Finance, 47. pp. 458-469. ISSN 0275-5319 (https://doi.org/10.1016/j.ribaf.2018.09.007)

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Abstract

Data breaches are not only on the increase but firms struggle to detect, defend and respond to such breaches. A data breach opens a period of crisis for the affected firm, generates complex information, and requires providing information to a variety of stakeholders in a timely and proper manner. This article reports one of the first studies on the impact of social media exposure by affected firms on stock price reaction to a data breach announcement. Using an event study methodology on a sample of 87 data breaches from 73 US publicly-traded firms from 2011 to 2014, we find that use of social media exposure at the time of a data breach exacerbates the negative stock price to the announcement. Interestingly, we find that this negative association is contingent on traditional media visibility; the effect is positive for low-visibility companies. Based on our results, we posit that there is a need for a contingency model for social media communication during firm crises and such a model should be based at least on firm size, visibility and the type of crisis.

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