Vendor selection in the wake of data breaches: A longitudinal study

Abstract

With the increasing digitization and networking of medical data and personal health information, information security has become a critical factor in vendor selection. However, limited understanding exists regarding how information security influences vendor selection. Drawing from the attention‐based view (ABV), this study examines the potential impact of data breaches on hospitals' selection of electronic medical record system (EMRS) vendors. To test our hypotheses, we compile a unique dataset spanning 12 years of observations from US hospitals. Utilizing a coarsened exact matching (CEM) technique combined with a difference‐in‐differences (DiD) approach, our study shows that hospitals tend to replace their EMRS vendors after experiencing data breaches. Moreover, breached hospitals tend to prioritize information security in such a vendor replacement process by switching to star vendors and migrating towards a single‐sourcing configuration. Further post‐hoc analyses reveal that these impacts of data breaches are mitigated as the relationship between breached hospitals and vendors matures or when hospitals belong to large healthcare systems. Additionally, we find that the effects of data breaches are contingent on the scale of the breach and are short‐term in nature. This research underscores the significance of information security as a crucial consideration in vendor selection for both academia and practitioners.