Cyber Incidents Take a Toll on Equity Prices, Study Finds

A recent study by the International Monetary Fund (IMF) has uncovered a significant link between cyber incidents and equity prices. The research reveals that certain types of cyber incidents can lead to a decline in equity returns, with smaller firms being particularly affected.

The Impact of Cyber Incidents on Equity Prices

The study analyzed data from January 2012 to May 2023 and found that:

• Malicious data breaches and network/website disruptions can lead to a decline in equity returns.
• The magnitude of the loss was largest for network/website disruptions, with small firms being particularly affected.
• The impact on equity prices was significant, even after controlling for factors such as firm size, industry, and type of incident.

Type of Incident Matters

The study also found that the impact of cyber incidents on equity prices varied depending on the type of incident. For example:

• Malicious data breaches had a greater impact than network/website disruptions.
• The estimated cumulative abnormal returns for each firm-incident pair with negative values multiplied by the market capitalization of the same firm one day prior to the incident.

Firm Size Matters

The study also revealed that firm size played a significant role in determining the impact of cyber incidents on equity prices. Smaller firms were more likely to experience a decline in equity returns following a cyber incident, while larger firms were less affected. This is because smaller firms may not have the same level of resources or expertise to respond to a cyber incident, making them more vulnerable to its consequences.

Drivers of Cyber Incidents

The study also examined the drivers of cyber incidents using a probit regression model. The results showed that several firm characteristics, including:

• Log (total assets)
• Firm age
• Share of asset intangibility
• Capex ratio
• Return on assets (ROA)
• Leverage

were significantly related to the likelihood of experiencing a cyber incident.

Conclusion

In conclusion, the study’s findings suggest that cyber incidents can have a significant impact on equity prices, particularly for smaller firms. The results also highlight the need for companies to invest in cybersecurity measures to protect their equity prices and the importance of considering firm characteristics when assessing the risk of cyber incidents.

The study’s findings have important implications for investors, policymakers, and companies looking to mitigate the risks associated with cyber incidents.