Short Selling Surrounding Data Breach Announcements

This study examines whether short sellers detect firm-level data breaches. Using proprietary daily lending data and unique data breach announcements, we investigate whether short selling anticipates prior to corporate data breaches and how it behaves in time leading up to announcements. Using a unique experimental setting of data breaches, we document an abnormal level of short-selling costs when a fi rm announces a data breach. Second, the results of our event studies report signi cantly negative cumulative abnormal returns (CARs) around data breach announcements. On a cross-sectional basis, we fi nd that short-selling activities strongly correlate with CARs. Furthermore, we provide evidence that short-selling activities improve market quality and price discovery. Overall, our study provides strong evidence that short sellers exploit prior knowledge of data breaches and play a positive role in capital market