Increased social media exposure can adversely affects the share price of firms who’ve experienced a data breach.
According to the study, Social media and stock price reaction to data breach announcements, conducted by Dublin City University (DCU) researchers, social media exposure can exacerbate the negative impact of data breach announcements and increase the cost of these breaches, with an average additional decrease in stock price of 1.2%. The study primarily focused on Twitter, and it looked at 87 individual breaches across 73 publicly listed US companies that occurred over a four-year period.
The effect is even more pronounced when a firm discloses a breach via their Twitter account (an additional decrease of 5.2% in stock price), increases their number of tweets over the event period, and has a large following on Twitter, the study said.
The study also found that timely communication and disclosure of a breach can reduce the potential harm for firms that have low-visibility with traditional media like newspapers. The impact for these firms is positive as social media offers them an effective channel to disseminate information that cannot be disseminated through more established channels.
According to the study, "A company crisis like a data breach is likely generate large volumes of interactions with the public. In this context, keeping control over the information flow may be challenging and at the same time paramount. If such control is not maintained, the reputation damage may be more pronounced due to the spreading of misinformation around the breach event."
“Social media has the expectation of instant feedback and meeting that expectation is incredibly difficult in midst of a crisis, and this creates a significant amount of pressure," said Dr. Pierangelo Rosati of the DCU Business School. "The number of tweets or comments can be overwhelming. Also, once bad news goes viral, it is very hard for companies to keep control of the information flow. In the context of a company crisis, this may be particularly detrimental and worsen an already serious situation. There is a generalized positive view on the adoption of social media for firms’ communications. This study shows that communications departments and press officers should be more aware of the downsides and negative aspects present when it comes to crisis management and allocate adequate resources to manage it.”