Has Decreasing Innovation Hurt the Stock Price of Information Security Firms? A Time Series Analysis

Prior research has shown that information security breaches are beneficial to the stock price of information security firms, around the time that these security breaches are announced. We, however, show that the overall trend in the market value of information security firms has actually been stagnating, despite an increasing number of security threats that exploit vulnerabilities in information systems. We attribute this decrease in the stock price of information security firms, after controlling for overall market conditions, to insufficient innovation on the part of information security firms. We apply time series regression methods to analyze the relationship between R&D intensity and the stock price of information security firms. This empirical work provides a plausible explanation for the decrease in the stock price of information security firms, despite high demand for their products and services.