Businesses that suffer a security breach may not see their stock price tumble, but they may pay higher rates for loans and be forced to provide collateral, researchers report.
Companies that experience a data breach may not suffer a long-term drop in stock price, but will often have to pay higher loan interest rates and grant other concessions, according to a study published this week.
The academic study, conducted by researchers at Yeshiva University in New York City and Hong Kong Polytechnic University, found the average company paid almost $3.7 million more in interest every year. Businesses with a strong reputation for IT security, which often have more favorable loan terms compared to their peers, suffered more following a breach.
These results underscore how banks charge companies for the uncertainty following a breach, says Henry Huang, an associate professor of accounting at Yeshiva University’s business school.
“After a breach, because of the direct and indirect costs, there is a lot of uncertainty in respect [to] the company’s future,” he says. “What happens with regulatory action? What happens with litigation? What happens if a major customer leaves? It’s uncertainty, and banks hate uncertainty.”
This study is the latest to attempt to quantify the impact data breaches have on companies. In April, an IOActive researcher found that a data loss event typically leads to a 5% drop in stock price, but almost two-thirds of companies recover in a month. Vulnerability disclosure causes a 4% drop in stock price, but the impact does not last more than a month, that study found.