The Effect of Information Security Incidents on Corporate Values in the Japanese Stock Market

We investigated the economic effects of newspaper reports of information security incidents on corporate values in the Japanese stock market. We found a different trend of effects in terms of reaction speed in the Japanese stock market compared with the US market. The reaction to news reports of the incidents is slower in the Japanese stock market than in the US market. We found statistically significant reactions in around 10 days after the news reports. We also found a new factor, i.e. PBR (Price Book-value Ratio), has more impact to the corporate market values than incident type, firm type or firm size. Corporate investments on information security are highly evaluated as intangible assets in the stock market especially for IT-oriented firms. PBR represents a kind of a measure how much intangible assets are evaluated in the market compared with net (tangible) assets. Our result suggests that firms whose intangible assets are highly evaluated suffer from the security incidents more severely than those whose intangible assets are evaluated smaller.