The effect of data breaches on company performance
International Journal of Accounting & Information Management
ISSN: 1834-7649
Article publication date: 27 March 2020
Issue publication date: 11 April 2020
Abstract
Purpose
This paper aims to analyze the effect of data breaches – whose concerns and implications can be legal, social and economic – on companies’ overall performance.
Design/methodology/approach
Information on data breaches was collected from online compilations, and financial data on breached companies was collected from the Mergent Online database. The financial variables used were related to profitability, liquidity, solvency and company size to analyze the financial performance of the breached companies before and after the data breach event. Nonfinancial data, such as the type and the size of the breaches, was also collected. The data was analyzed using multiple regression.
Findings
The results confirm that nonmandatory information related to announcements of data breaches is a signal of companies’ overall performance, as measured by profitability ratios, return on assets and return on equity. The study does not confirm a relationship between data breaches and stock market reaction when measuring quarterly changes in share prices.
Research limitations/implications
The main limitation of the study relates to ratio and trend analyses. Such analyses are commonly used when researching accounting information. However, they do not directly reflect the companies’ conditions and realities, and they rely on companies’ released financial reports. Another limitation concerns the confounding factors. The major confounding factors around the data breaches’ dates were identified; however, this was not enough to assure that other factors were not affecting the companies’ financial performance. Because of the nature of such events, this study needs to be replicated to include specific information about the companies using case studies. Therefore, the authors recommend replicating the research to validate the article’s findings when each industry makes more announcements available.
Practical implications
To remediate the risks and losses associated with data breaches, companies may use their reserved funds.
Social implications
Company data breach announcements signal internal deficiencies. Therefore, the affected companies become liable to their employees, customers and investors.
Originality/value
The paper contributes to both theory and practice in the areas of accounting finance, and information management.
Keywords
Acknowledgements
Declaration of interest: The authors report no conflicts of interest. The authors alone are responsible for the content and writing of this paper.
Citation
Juma'h, A.H. and Alnsour, Y. (2020), "The effect of data breaches on company performance", International Journal of Accounting & Information Management, Vol. 28 No. 2, pp. 275-301. https://doi.org/10.1108/IJAIM-01-2019-0006
Publisher
:Emerald Publishing Limited
Copyright © 2020, Emerald Publishing Limited