A data breach can lead to lost records, compliance issues, and intellectual property being compromised, but it can also have more lasting effects. A Tuesday report from Comparitech explained how a data breach can impact your stock price, sometimes for years to come.
Right after a breach, a stock price will drop 0.43% on average, but that is par for the course in daily volatility, the report said. The bigger problem comes in the years that follow. After a breach, a company’s stock price will continue to rise, but at a much slower pace than before, the report said. “In the long term, however, the average share price stagnated and struggles to surpass 10 percent growth until after about two years, when it starts to pick back up again again,” the report stated.
Before a breach, the stock price of the companies studied increased by 45.6% over three years, on average. After a breach though, those stock prices only grew 14.8% in the same time period, the report said.
SEE: Information Security Management Fundamentals (TechRepublic Academy)
Keep in mind that these are average statistics. Some companies experienced more dramatic impacts on both sides of the spectrum.
“A data breach can harm both public sentiment and a company’s competitive edge in the market depending on the type of breach. In this study, we wanted to quantify that ‘sentiment’ and assess the impact on investors through Wall Street’s reaction to a data breach,” Paul Bischoff, researcher and privacy advocate for Comparitech.com, said in a press release.
More recent breaches had a smaller negative impact on stock price than older ones. The report said that this could be due to “breach fatigue,” as users are inundated with news about these types of incidents more frequently.
Financial institutions were the hardest hit by breaches, seeing the largest decline in share price, while internet and social media companies suffered worse long-term effects, the report said. Oddly enough, large breaches didn’t impact price as much as small data breaches. Additionally, the more sensitive the data that was breached, the bigger the impact it had.
Companies that had experienced a breach also performed poorly against the NASDAQ. After an initial breach, they recovered to their performance level in 38 days, but three years later, they’ll be outperformed by the NASDAQ by some 42% on average, the report found.
While the firm tried to minimize blind spots in its report, it did note that payouts from class action suits and other financial reports could also have affected share price.
For its report, Comparitech examined the stock prices of the following 24 companies: Apple, Adobe, Anthem, BetFair, Countrywide, Community Health Systems, Dun & Bradstreet, Ebay, Experian, Global Payments, Home Depot, Health Net, Heartland Payment Systems, JP Morgan Chase, LinkedIn, Monster, T-Mobile, Sony, Staples, Target, TJ Maxx, Vodafone, VTech, and Yahoo.
The 3 big takeaways for TechRepublic readers
- A data breach can have a massive impact on a company’s share price, often causing slow growth and poor performance for years after the fact, according to a new report from Comparitech.
- A data breach hurts the company’s reputation, but recent breaches had less of an impact that older ones on company stock prices.
- More sensitive data creates a bigger impact after a breach, and finance companies were the worst affected.