Content area
Full Text
ABSTRACT: This study focuses on the stock market reaction to denial of service attacks against certain well-known Internet firms in February 2000. Investors appear to have used several heuristics in deciding which firms were "similar" to those attacked, and thus predicted that they were also likely to be attacked. The primary heuristic employed appears to have been similarity in reliance on the Internet to conduct operating activities (i.e., the set of Internet firms). We find negative mean abnormal returns among Internet firms not actually attacked (i.e., information transfer). This occurred both within Internet industries in which some firms were attacked, and within Internet industries with no attacks. A secondary heuristic appears to have been that Internet firms similar in size to those attacked (i.e., relatively large) were more likely to be attacked. In contrast to all other Internet industries, providers of Internet security products and services experienced positive mean abnormal returns.
I. INTRODUCTION
In the past decade a new type of business has emerged: the "Internet firm." Such firms operate in a variety of industries, but are similar in that they rely almost completely on information technology when conducting such fundamental operations as buying and selling goods and services.1 When the technology fails, Internet firms literally cease to function for a period of time.2 We examine investors' reactions to an event of this type: distributed denial of service (DOS) attacks launched by hackers against several of the best-known Internet firms in February 2000. The study investigates whether investors employed certain heuristics to decide which additional Internet firms were most likely to be harmed or helped by future attacks. In particular, we investigate whether those Internet firms not attacked experienced abnormal stock returns due to "information transfer."
Numerous prior studies have investigated stock market information transfers in other contexts (Foster 1981; Eckbo 1983; Bowen et al. 1983, Olsen et al. 1985; Baginski 1987; Han and Wild 1990; Firth 1996; Laux et al. 1998). An information transfer occurs when an information event for one firm (such as an earnings announcement) affects the share prices of other firms (Foster 1986). For example, if one firm announces lower-than-expected earnings, that firm is likely to experience negative abnormal returns. Moreover, similar firms are likely to experience simultaneous abnormal...