There can be no doubt that the term ‘data breach’ is one that companies of all kinds dread hearing. However, they seem to be an occupational hazard given the increasing sophistication of malware, ransomware, and other types of viruses.

But what is the real impact of having your data compromised? The news is quick to identify which companies have suffered data breaches, but there’s often little follow up on the actual impact. 

While a dip in a company’s stock prices is inevitable, it isn’t the only result businesses should expect. Nor should all businesses anticipate the kind of impact.

Let’s take a closer look at some common outcomes.

Initial Dip

As you’d expect, the moment a data breach is publicly announced (which should always be as soon as possible) there’s a decline in a listed company’s share value. There are several factors that have a bearing on this – loss of customer confidence, loss of investor confidence, brand reputation among other things.

However, the impact on share values are largely felt several weeks after the breach itself. It may be that it takes this long for all of the surrounding factors to be fully realized; or it might be simply because the effect is self-inflicted – data is lost, staff lose jobs, IT investment is increased, profits decrease. The immediate aftermath is a frenetic time when businesses scramble to get things back on track.

Slight Rebound

According to research conducted by Comparitech (which analyzed 33 high profile data breaches and how each affected company performed on the stock market), while share prices typically drop 14 market days after a breach, after six months performance recovers – and often exceeds the NASDAQ average.

It could be that the press coverage companies are given in the immediate aftermath of a data breach, puts them front of mind for new customers – the presumption being that now the company’s been hit, they’ll work even harder to prioritize security.

Longer Term Hit

Timing is everything where data breaches are concerned. An IBM survey on the cost of a data breach shows that on average, 67% of data breach costs were realized within the first year, followed by 22% in the second year and 11% in year 3. 

The increased costs obviously have a bearing on stock prices. However, time is also a great healer. While the effects are lasting, as companies begin to recover, and trust is rebuilt share prices can recover. But this really depends on the nature and impact of the breach itself.

Impact Depends On Data & Sector

Not all data breaches are created equal. There are many different reasons why they take place. Human error is just a likely a cause as a coordinated attack; and by hack standards, some are more vindictive and wide reaching than others. 

However, it would appear that there are several factors impacting share price where breaches are concerned:

• The sensitivity of the data compromised – the theft of credit card details, bank accounts, and medical records are understandably the most damaging. 
• The industry the breached company operates in – businesses operating in banking, financial services, and healthcare are most likely to suffer a drop in their share prices.
• The size of the data pool – the more data is stolen, the more people are affected, and the less favourable an impact that’ll have on share prices. 

Bigger Not Always Better for Hackers

Overall, the bigger the company, the more data there is – which makes larger businesses desirable targets. However, that doesn’t mean that smaller companies won’t suffer the effects too. In fact, they’re often seen as easier targets by hackers – primarily because they’re less likely to put adequate security measures in place.

This needs to change – for all of the reasons outlined about. After all, data is one of a business’ most valuable assets, so the need to protect it should be just as important as investing in ways to segment, analyze, and monetize it.

About Red Rhino