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The Economics of Information Security: Page 6 of 6

Indeed, most cybercrimes don't have a significant effect on the stock market value of companies that suffer breaches, the study showed. Shareholders seem to understand that an incident with only a transitory effect--a virus briefly downing a bank's ATMs, for instance--won't send customers scurrying. But a leak of confidential information--an attacker spewing a bank's customer data across the Internet--could destroy customer confidence and create potential for lost revenue, causing the company's market value to plummet. In fact, companies that suffer a confidentiality violation lose more than 5 percent of their market value, on average, according to our research.

Bottom line: Companies that don't make confidential-data protection a priority risk shareholders' wrath. And that could be a high price to pay.

Dr. Martin P. Loeb is a professor at the University of Maryland's Smith School of Business. He has co-authored several articles on information security economics, and he is part of the team preparing the 2004 CSI/FBI cybercrime study. ~ By Martin P. Loeb