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

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.