The Effect of Internet Security Breach Announcements on Market Value: Capital Market Reactions for Breached Firms and Internet Security Developers

Assessing the value of information technology (IT) security is challenging because of the difficulty of measuring the cost of security breaches. An event-study analysis, using market valuations, was used to assess the impact of security breaches on the market value of breached firms. The information-transfer effect of security breaches (i.e., their effect on the market value of firms that develop security technology) was also studied. The results show that announcing an Internet security breach is negatively associated with the market value of the announcing firm. The breached firms in the sample lost, on average, 2.1 percent of their market value within two days of the announcement--an average loss in market…