Legitimacy Loss Following Data Breach: Examining Government Contract Awards and Firm Lobbying

Abstract

Seeking and securing government contracts can be a lucrative strategy for legitimate firms. However, firms’ ability to secure such contracts following a transgression that threatens its legitimacy is unclear. Building on previous research about the consequences of and firms’ response strategies following a transgression, we examine the awarding of government contracts following a data breach, unique transgressions that have become increasing salient for both firms and government. We also examine ways in which the firm can manage such consequences through its lobbying activity. Results indicate that firms secure fewer government contracts following a data breach and engaging in inside lobbying worsens the transgressing firm’s consequences. This study provides both practical and theoretical insight into how firms can damage relationships with government and exacerbate the situation by using inept political strategies.