Report: Security Slip-Ups Don't Ding Stock Prices For Long - InformationWeek

InformationWeek is part of the Informa Tech Division of Informa PLC

This site is operated by a business or businesses owned by Informa PLC and all copyright resides with them.Informa PLC's registered office is 5 Howick Place, London SW1P 1WG. Registered in England and Wales. Number 8860726.

04:54 PM

Report: Security Slip-Ups Don't Ding Stock Prices For Long

Although prices may dip temporarily on bad news of a data breach, the price rebounds quickly.

Most major security blunders don't affect the company's stock price for long, a researcher reported this week. In fact, investors may be able to use the rebound to make money.

Kenneth Belva, who runs a security consulting company on the side and is an information security officer for Credit Industriel et Commercial in New York during the day, analyzed several prominent data breaches in 2004 and 2005 by comparing the negative press of the incident with the movement of the firm's stock price.

"Why is it the case that information security incidents do not appear to have a greater impact on both investor confidence as well as the public at large? " asked Belva this week as he presented his research at the FiTech Summit on Long Island, N.Y. "If 40 million customer credit card numbers are exposed in a security breach at the credit card processor CardSystems , why do a significant number people not cancel their Visa and/or Mastercard?"

To answer those questions, Belva charted stock prices before and after data losses at the likes of Polo Ralph Lauren, UPS, Choicepoint, Bank of America, and Citigroup; took into account other news during those time spans that likely affected the price; and also looked at the long range trends in each company's stock.

"[Stock prices are] the only publicly visible measure of confidence in a corporate institution," said Belva.

His conclusions?

Most security problems don’t effect the company's stock price. Although prices may dip temporarily on bad news of a data breach, the price rebounds quickly.

"[Security] incidents occur infrequently. If Citigroup and UPS lost 3.9 million customer records every week and Bank of America's employees were found to consistently sell customer information illegally, we would most likely change our minds about where we do business," said Belva in his paper.

In the Citigroup/UPS incident, in which the latter lost a shipment of tapes containing nearly 4 million current and former accounts, Belva found that Citigroup's stock price fell a puny .02 percent the day the financial firm put out a press release on the lost tapes, but that the stock actually rose 0.27 percent when the story made the media four days later. UPS' stock, meanwhile, climbed 0.22 percent the day after the story made the rounds.

Only when a data loss impacts the core business of a company -- such as when Choicepoint admitted to selling data to fraudsters, or when third-party credit card processor CardSystems was hacked, resulting in the exposure of nearly 40 million cards -- does the stock, and thus the company, take a hammering, Belva said.

In Choicepoint's case, its stock price fell 3.1 percent on the day the breach was reported, and then continued to fall. Five days after the story made the papers, for instance, its stock plummeted by nearly 10 percent.

"The reason for the long term loss was that their top line was affected," said Belva. "Choicepoint changed and dropped some of their information products as a result of their breach."

Belva also made note that the short-lived drop in the stock price of a company impacted by a data breach might be of interest to profiteers. "Perhaps the old adage to 'buy on bad news and sell on good news' may be applied here," he said. "Based on the known cases, there is a good chance that the stock will decline in the short term and rebound soon after. In effect, it may be possible to make money off the publicly reported breach.

"Granted I didn't say that was an ethical thing to do, only that it seems possible in theory," he temporized.

Belva's research paper, titled "How It's Difficult to Ruin A Good Name: An Analysis of Reputational Risk," can be downloaded from his Web site.

We welcome your comments on this topic on our social media channels, or [contact us directly] with questions about the site.
Comment  | 
Print  | 
More Insights
State of the Cloud
State of the Cloud
Cloud has drastically changed how IT organizations consume and deploy services in the digital age. This research report will delve into public, private and hybrid cloud adoption trends, with a special focus on infrastructure as a service and its role in the enterprise. Find out the challenges organizations are experiencing, and the technologies and strategies they are using to manage and mitigate those challenges today.
Enterprise Guide to Edge Computing
Cathleen Gagne, Managing Editor, InformationWeek,  10/15/2019
Rethinking IT: Tech Investments that Drive Business Growth
Jessica Davis, Senior Editor, Enterprise Apps,  10/3/2019
IT Careers: 12 Job Skills in Demand for 2020
Cynthia Harvey, Freelance Journalist, InformationWeek,  10/1/2019
Register for InformationWeek Newsletters
Current Issue
Getting Started With Emerging Technologies
Looking to help your enterprise IT team ease the stress of putting new/emerging technologies such as AI, machine learning and IoT to work for their organizations? There are a few ways to get off on the right foot. In this report we share some expert advice on how to approach some of these seemingly daunting tech challenges.
White Papers
Twitter Feed
Sponsored Live Streaming Video
Everything You've Been Told About Mobility Is Wrong
Attend this video symposium with Sean Wisdom, Global Director of Mobility Solutions, and learn about how you can harness powerful new products to mobilize your business potential.
Sponsored Video
Flash Poll