The Effects of Terrorist Attacks on Supplier–Customer Relationships

Abstract

We examine the causal effects of nearby terrorist attacks on supplier–customer relationships. We find that for supplier firms located near terrorist attacks, the probability of relationship termination with their major customers increases by 2.9 percentage points within two years following the attacks. The major customers’ intensified perceptions of supply chain risk largely drive the relationship termination. Further analyses show that major customers tend to switch to suppliers with lower terrorism risks after they end their relationships with the suppliers near attacks. This study provides new insights into the consequences of terrorism by extending the focus to the response of a key stakeholder group (i.e., trade partners) instead of the attack-afflicted firms per se.