The Impact of Customer’s Reported Cybersecurity Breaches on Key Supplier’s Relationship-Specific Investments and Relationship Duration

61 Pages Posted: 20 Mar 2020

See all articles by Chris He

Chris He

JiangBo HuangFu

affiliation not provided to SSRN

Mark J. Kohlbeck

Florida Atlantic University - School of Accounting

Lin Wang

affiliation not provided to SSRN

Date Written: February 25, 2020

Abstract

We investigate the impact of customers’ cybersecurity breaches (CSBs) on its supplier’s relationship-specific investment decisions and the duration of supplier-customer relationship. We document a significant negative association between customer reported CSBs and suppliers’ relationship-specific investments in the subsequent year. In addition, we find customers’ reported CSBs increase the likelihood of supplier-customer relationship termination in the subsequent year. Suppliers reduce their relationship-specific investment by 6% of total sales in the subsequent year following customers’ reported CSBs. More importantly, supplier-customer relationships are two times more likely to be terminated the year after a customer reports a CSB incident. Our findings demonstrate that CSBs are an economically significant event to the breached firm in terms of indirect costs and provide further insight into how a CSB can influence the perception of the firm’s influential stakeholders, especially its key suppliers.

Keywords: data breach, cybersecurity, relationship-specific investment, research and development, relationship duration, major customers

JEL Classification: M41

Suggested Citation

He, Zhijian and HuangFu, JiangBo and Kohlbeck, Mark J. and Wang, Lin, The Impact of Customer’s Reported Cybersecurity Breaches on Key Supplier’s Relationship-Specific Investments and Relationship Duration (February 25, 2020). Available at SSRN: https://ssrn.com/abstract=3544245 or http://dx.doi.org/10.2139/ssrn.3544245

JiangBo HuangFu

affiliation not provided to SSRN

Mark J. Kohlbeck (Contact Author)

Florida Atlantic University - School of Accounting ( email )

777 Glades Avenue
KH 119
Boca Raton, FL 33431-0991
United States
561-297-1363 (Phone)

Lin Wang

affiliation not provided to SSRN

No contact information is available for Zhijian He

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