Title: The Role of Corporate Social Responsibility: Evidence from the Market Reaction to Data Breach Announcements
Author(s) : Trevor Chamberlain, Rahman Khokhar, Wei-ju Liao
Using a sample of US data breaches and two major sources of corporate social responsibility (CSR) ratings, we examine the relationship between firm performance and CSR activites, and the channels through which CSR activities affect investors' views of breached companies when the breach is disclosed. A data breach involves an intentional or unintentional leakage of proprietary information about a company and its shareholders, which may precipitate a decline in share value. We find that firms with higher pre-breach environmental, social and corporate governance (ESG) scores experience a signficantly less negative stock market reaction to data breach announcements than their counterparts with lower pre-breach ESG scores. Our evidence suggests that social performance insures companies against information security indidents. However, the way in which the market assess CSR ratings provided by different agencies is divergent, which should be a concern for stakeholders.