Ta-wei Wang Essays on Information Security from an Economic Perspective Doctor of Philosophy

Wang, Ta-Wei. Ph.D., Purdue University, August, 2009. Essays on Information Security from an Economic Perspective. Major Professors: Jackie Rees and Karthik Kannan. Information security risks are becoming a critical issue to organizations given the significant impact of security related incidents. In this dissertation, we seek to further our understanding of how information security incidents and security practices affect information security risks. The first essay proposes a decision tree classification model to investigate how the nature of security risk factors disclosed in financial reports is associated with breach announcements in the subsequent period. We construct and evaluate the model based on the design science principles in Hevner et al. (2004). The model shows that security risk factors with action-oriented terms are less likely to be related to future incidents. We evaluate the model by showing that market participants could better interpret security disclosures at the time when financial reports are released. The second essay studies how general investors can make better investment decisions regarding security breaches. We explore the association between the textual contents of the news articles about security breach reports and both the stock price and trading volume reactions to breach announcements. The results suggest that general