The importance of cybersecurity disclosures in customer relationships

Abstract

AbstractThe escalating use of digital technologies has spotlighted the crucial role of cybersecurity in safeguarding sensitive information within companies. This study explores the relationship between a firm's major customers and its cybersecurity awareness. Drawing on SEC‐mandated disclosures, we employ four proxies to measure changes in customer‐supplier relationships. Our findings reveal that customers increase their purchases from suppliers whose cybersecurity awareness scores improve. Additionally, we examine the interplay between customers and suppliers more susceptible to nonpublic adverse news, particularly during cyber events. The study emphasizes the importance of cybersecurity disclosure for regulators, supply chain partners, and corporate management. It also contributes to the literature on factors influencing the duration of customer‐supplier relationships and underscores the significance of supplier characteristics. “Understanding and disclosing cybersecurity risks are” paramount in an increasingly digital business landscape.