Extending the literature that has focused thus far on stock price impact, this study investigates the effect of data breach announcements on market activity, specifically through the response of the bid-ask spread and trading volume. We investigate data breach announcements as a potential source of asymmetric information and provide a new dimension to the ongoing debate on market efficiency. Adopting an event study methodology on a sample of 74 data breaches from 2005 to 2014, we find that data breach announcements have a positive short-term effect on both bid-ask spread and trading volume. The effect is only evidenced however on the day of the event, with market efficiency ensuring a quick return to normal market activity. No abnormal trading activity emerges before announcements, so there is no evidence in our study that these types of events are being exploited by informed market participants. The magnitude of event day effects is found to be more pronounced for large breaches, and when the breach involves lost devices.

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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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