Service crisis recovery and firm performance: insights from information breach announcements

Abstract

The extant literature has studied the effects of a firm's service recovery efforts on the reactions of customers and employees following an individual service failure. However, the impact of recovery efforts on a firm's performance after a public and large service failure-such as a largescale information breach-has received scant attention. To address this gap, this current research develops a framework and finds support for the impact of service crisis recoveries on a firm's performance, as measured by firm-idiosyncratic risk. Using a unique dataset of service crisis recoveries, the authors find that firms offering compensation (i.e., tangible redresses) or process improvement (i.e., improvements in organizational processes) show more stable performance (less idiosyncratic risk), from two quarters to two calendar years after the announcement of their recovery plan. In line with the documented dual effect of apologies, firms that offer apology-based recoveries display more volatile performance (higher idiosyncratic risk). Of note, this volatility increases with the number of affected individuals, and it remains unaffected even when the apology is expressed with high intensity.

‘Corporate image at stake’: The impact of crises and response strategies on consumer perceptions of corporate brand alliances

“…Admission of guilt through apology and acknowledgement is, by contrast, inefficacious in such crises, where damage repair is not possible (Kim et al, 2004). The above contention is consistent with research showing that apology, if not appropriately delivered, can lead to negative responses and backlashes, especially in a public context (Goodwin & Ross, 1990;Zechmeister, Garcia, Romero, & Vas, 2004), and if seen as a 'cheap' response (Rasoulian, Grégoire, Legoux, & Sénécal, 2017).…”

Cyber insurance demand, supply, contracts and cases

“…The approach used in McShane and Nguyen's paper is similar to that in the finance literature in that the authors examine the American stock market's reaction to cyberattacks (mostly data breaches) on publicly traded firms. Contrary to the results presented in Rasoulian et al (2017), McShane and Nguyen find no significant stock market reaction to cyberattacks, on average, over the 10 years under examination. The story does not end there, however.…”

“…https ://www.wriec 2020.org/ 2Goode et al (2017),Culnan and Williams (2009) andRasoulian et al (2017) include information breach, which they define as unauthorised access to personal information of a group of individuals, as a source of cyber risk. 3 See the excellent cyber insurance reviews ofEling and Schnell (2016) andMarotta et al (2017).…”

Organizational service strategy

“…Further, first-time customers expect greater compensation early, with relational customers demonstrating a longer zone of tolerance but exhibiting heightened expectations when recovery takes a longer period of time. In combination with the work of Rasoulian et al (2017), both of the recovery papers demonstrate the complexities of both large scale and individual failure recoveries, as well as suggesting the combined importance of both the Bhow^and Bwhenĉ omponents of strategic service interactions.…”