The Impact of Customer-Reported Cybersecurity Breaches on Key Supplier Innovations and Relationship Disruption

Abstract

Cybersecurity breaches (CBs) negatively influence the breached firms’ business functions, including their innovative investments. Recent research documents a spillover effect of CBs into supply chain firm performance. We extend this research and investigate the impact of customers’ CBs on suppliers’ innovative investments and the disruption of supplier-customer relationships. We find a significant negative association between customers’ reported CBs and suppliers’ innovative investments in the subsequent year. In addition, we find customer-reported CBs increase the likelihood of supplier-customer relationship disruption in the subsequent year. Our study contributes to the broader understanding of the negative impacts of CBs not only on the breached firm’s financial performance but also on key supplier innovation decisions. Data Availability: Data are available from the public sources cited in the text. JEL Classifications: L14; L29; M49; O30.