Do Data Breaches Impact Shareholder Value
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:
and we eventually wandered into the discussion of what data breaches cost shareholders, with Wade making the suggestion that
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.