Market reaction to e-commerce impairments evidenced by website outages

Abstract

This study examines the stock market reaction to announcements of website outages. Outages impair business to consumer electronic commerce, potentially resulting in significant losses to affected organizations. Anecdotal evidence suggests a negative impact of outages on the market value of the organization; however there has not been any formal empirical analysis. We find a significant negative correlation between website outage announcements and stock returns, and the correlation is increasing in the percentage of revenues earned through Internet business. We also report differential results dependent on the type of outage, but find no evidence of differential response associated with length or frequency of outages. Our findings would support significant expenditures to prevent future website outages. © 2006 Elsevier Inc. All rights reserved.