“Data Breach Disclosure Laws and Insider Trading” – by Professor Gilles Hilary
Professor Gilles Hilary
Houston Term Professor
McDonough School of Business
Using the staggered adoption of data breach notification laws at the state level, we examine whether mandatory breach disclosure affects insider-selling behavior. We find that insiders’ selling profit is larger and selling speed is faster after the laws become effective. Furthermore, the effects of the laws are more prominent in industries where the risk is higher but less significant when laws are stricter. We also find that firms affected by these laws became more ambiguous in their disclosure and suffered from a greater change in idiosyncratic return skewness. The change in trading behavior is concentrated among firms that experienced a greater increase in uncertainty and return skewness. Lastly, we show that the change in uncertainty is correlated with the change in skewness.