The Impact of Information Security Breaches and IT Security Investments on a Firm’s Competitors

Abstract

The information systems security is nowadays no longer independent from the security environment of the industry. A question may arise whether stock market value reflects the interdependence of security breaches and investments. In this paper, we investigated how security breaches and IT security investments influence the competitors using the event study methodology. We collected and reviewed 84 information security breach and 83 IT security investment announcements from 2010 to 2016. We found substantial support that the security breach had a competition effect because when one firm was breached, the other companies might absorb the market power. However, the security investment had a contagion effect. The stockholders usually consider the competitors’ announcements, because the security investment information used to be opened less than other information. We delineated a set of firm-level characteristics (industry and size). This study contributes to better understanding by examining the relationship between announced firms and their competitors.