Mandatory Data Breach Disclosure and Insider Trading

Recent data breach have generated concerns that insiders might use cyber risk related nonpublic information in their trading. 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 for firms that likely suffer from higher data breach risk. However, the effect is mitigated in states with stricter laws. These findings highlight the unintended consequence of prompting opportunistic insider selling.