Exaforge

Cloud, DevOps, Evangelism

Do Data Breaches Impact Shareholder Value - A Quick Analysis

I had an interesting chat on twitter today with a friend and colleague Wade O’Harrow. He used to be at a bunch of places, but currently leads the SE team for HyTrust, a security company (yes, thats oversimplifying it). He started the exhange with:

Data is growing at exponential rates, and the trend of Corporate data breaches is staggering. still many question the need for protection.

and we eventually wandered into the discussion of what data breaches cost shareholders, with Wade making the suggestion that

@mcowger - The Risk vs. Reward question. Productivity is great, but a security breach could wipe out more shareholder value long term.

I said as much on Twitter, but I’m not certain this is actually true. Note - I’m not arguing that we should have security, or that the breaches aren’t bad. I’m arguing that they don’t seem to impact long term share holder value.

So I decided to test this theory, and made the following assumptions / constraints

  • The company being analyzed must be public, so we can see what happens with shareholder value.
  • The company must not have undergone a major acquisition/merger/stock/new dividen/split event.
  • The breach must have happened at least 1 year ago.
  • We’d need a benchmark to make sure that any changes in the company’s stock price was not simply a reflection of the market as a whole. I chose Vanguard’s VTSAX - Total Stock Market Index Fund as the benchmark.
  • I’ll compare the price of the stock (and benchmark) approx 2 weeks before public notification of the event (subject to weekdays/holidays) and exactly 1 year after that date. The coincides with the IRS definition of ‘long term’ when it comes to investments.
Stock Event Notification Before Date Stock Price Benchmark Price 1 Year Date Stock Price Benchmark Price % Change Stock % Change Benchmark
Michaels April 14, 2014 April 1, 2014 26.89 47.81 April 1, 2015 22.36 52.09 -16.85% +8.95%
UPS Aug 21, 2014 Aug 1, 2014 97.03 48.41 Aug 3, 2015 102.75 52.79 +5.89% +9.04%
Home Depot Sept 18, 2014 Sept 2, 2014 91.15 50.60 Sept 2, 2015 116.48 49.21 +27.78%% -2.74&%
KMART Oct 10, 2014 Oct 1, 2014 17.57 48.62 Oct 1, 2015 23.95 48.14 +36.31% -0.98%
Target Dec 18, 2013 Dec 2, 2013 62.73 45.58 Dec 2, 2014 73.07 51.77 +16.48% +13.58%

As is clear from the raw data above, in all cases but one (Michaels), the stock price (shareholder value) of the affected companies all went up. In 3 out of the 5 cases (60%), we see that the benchmark is handily beat as well.

As such, I stand by my assertion that, today, massive data breaches may have notable costs for the public at large and for the company affected, but they don’t appear to have a notable impact on long term shareholder value.