Understanding Data Breaches in a Supply Chain Setting: Financial Implications and Stakeholder Influence

Digitalization efforts in operations management can improve firm performance. However, the heavy reliance on data in digital operations introduces new operational risks for firms, particularly in inter-organizational supply chain settings. In this study, we assess the financial implications of data breaches as one crucial emerging risk and subsequently identify a set of key influencing factors in the stakeholder environment of the breached firm. Based on a sample of 219 data breach announcements by publicly traded U.S. firms, we conduct an event study to examine the stock market reaction to data breaches and find a significantly negative stock market reaction of -0.55% to announcements of data breaches. Higher employee data competence can partially mitigate the negative impact on shareholder value. In contrast, the impact is more negative when customer data is compromised, the breach initially occurred outside the focal firm, the regulatory environment is stricter, and the firm receives more media attention. Our findings allow us to derive actionable implications that help managers mitigate the risk and the negative consequences of data breaches.

Christoph G. Schmidt is a Senior Researcher and Lecturer at the Chair of Logistics Management at the Swiss Federal Institute of Technology Zurich (ETH Zurich) in Switzerland. His main area of research is at the intersection of operations management and information systems, including blockchain and additive manufacturing, social media, data breaches, and risk management. His work has appeared in Production and Operations Management, Journal of Operations Management, Journal of Supply Chain Management, Journal of Business Logistics, International Journal of Production Research, and other journals.