We examine abnormal stock returns around data breach events from 2005 to 2022 in the U.S. and investigate if breach severity, confounding strategies, and managerial characteristics help explain returns of breached firms and differences in returns with comparable firms. We find that breach severity has a significant negative and economic effect on stock returns, while confounding strategies by managers help to attenuate this effect. We also find that managers are more likely to adopt confounding strategies when the breach is severe, and that characteristics such as managerial overconfidence, CEO equity holdings, CEO tenure, and prior misstatements by the firm increase the likelihood of confounding. Our study has important implications for understanding the impact of data breaches on firm value and in predicting managerial behavioral responses to breaches when severity and agency costs are high.