Supply Chain Trust Decline: Cybersecurity Risks and Corporate Trade Credit
Authors: GENG Yong, XIANG Xiao-jian, WAN Pan-bing
Date: 2024-05-08 00:00:00
Proceeding: China Industrial Economy 2024 5

： With the rapid expansion of cyberspace and the fast development of information 
technology， cyberattacks have become increasingly commonplace. According to the survey of 
Cybersecurity Ventures， a world-renowned network economy research institution， the economic loss 
caused by cybercrimes is estimated to reach USD 10.5 trillion per year by 2025. The Chinese 
government attaches great importance to cybersecurity. General Secretary Xi Jinping profoundly 
pointed out that “without cybersecurity， there is no national security”. However， existing studies have 
paid insufficient attention to the cybersecurity issues faced by Chinese enterprises. At present， the 
digital economy has become an inevitable trend in China’s economy. It can be predicted that the 
cybersecurity risk exposure of Chinese enterprises will become increasingly prominent. In this context， 
accurately understanding the economic consequences of enterprise cybersecurity risks and exploring the 
effective governance strategies of enterprise cybersecurity risks can not only provide theoretical support 
for the formulation of cybersecurity-related policies in China but also provide new ideas for coping with 
future digital technology changes.
 Based on the text analysis method of machine learning， this paper innovatively depicts the 
cybersecurity risks of Chinese enterprises and empirically examines the impact of cybersecurity risks on 
the trade credit decision and long-term business relationship of upstream and downstream enterprises. 
This paper finds that cybersecurity risks significantly reduce corporate net trade credit and customers 
are more sensitive to enterprise cybersecurity risks than suppliers. The decrease in corporate net trade 
credit is mainly driven by customers’ risk aversion motivation. In addition， the reputation loss caused 
by cybersecurity risks is more obvious in enterprises with greater exposure to cybersecurity risks， such 
as enterprises with higher digitalization or more trade secrets and non-state-owned enterprises， as well 
as in enterprises with a weaker ability to control losses afterward， such as enterprises with smaller 
market power， greater financing constraints， and lower management ability. Further analysis shows that 
cybersecurity risks lead to the dynamic adjustment of the business relationship between customers and 
enterprises， so that customers allocate more businesses to other enterprises， thus triggering the long
term decline of supply chain trust. Strengthening digital governance， risk management， and enterprise 
communication can effectively alleviate the trust decline caused by cybersecurity risks.
 The possible contributions of this paper are as follows. Firstly， this paper extends relevant studies 
on reputation loss of cybersecurity risks from the perspective of supply chain trust. By examining the 
impact of enterprise cybersecurity risk on the trade credit decision of upstream and downstream 
enterprises and the adjustment of the long-term business relationship caused by it， this paper provides a 
new perspective for revealing the transmission mechanism of cybersecurity risks in the supply chain. 
Secondly， this paper supplements research on the influencing factors of corporate trade credit from the 
perspective of cybersecurity risks. Digital technology and the real economy are deeply integrated with 
the rapid development of information technology. While bringing efficiency to enterprises， new 
technologies generate new cybersecurity problems. Analyzing the impact of cybersecurity risks on 
corporate trade credit， this paper provides new ideas for understanding trust construction and business 
dynamics among enterprises in the context of the digital economy. Thirdly， at the methodological level， 
this paper innovatively uses the text analysis method based on machine learning and take the MD&A 
text of listed companies’ annual reports as the analysis objects to construct indicators that can 
comprehensively reflect the cybersecurity risks of Chinese enterprises， providing a useful reference for 
the subsequent assessment of enterprise cybersecurity risks and their economic impacts.