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The effect of the Rana Plaza disaster on shareholder wealth of retailers: Implications for sourcing strategies and supply chain governance
Abstract
Supply chain and reputational risks are often assumed to motivate firms to source production in developed, high-cost countries rather than developing, low-cost countries. To examine this assumption, we provide evidence from the collapse of the Rana Plaza building on April 24, 2013, which with its 1133 fatalities and 2438 injuries is seen as one of the worst industrial accidents in history. Do markets reactive negatively enough to such events to motivate firms to shift their sourcing strategy? We analyze the stock market reaction to the Rana Plaza disaster in the Bangladeshi ready-made garment industry to address this question. Our analysis is based on a sample of 39 publicly traded global apparel retailers with significant garment sourcing in Bangladesh. Stock market reaction to retailers on the day of the Rana Plaza disaster is negative, but its magnitude and significance dissipate by the following day. We find no evidence of significant stock market reaction during the 11 trading days (approximately two weeks in calendar time) following the disaster. Retailers responded to the disaster by developing two different agreements to improve factory and worker safety in Bangladesh - the Accord on Fire and Building Safety in Bangladesh (AFBSB), and the Alliance for Bangladesh Worker Safety (ABWS). We find no evidence of significant stock market reaction to the announcements of the AFBSB and the ABWS. The insignificant negative economic impact from the Rana Plaza disaster suggests that retailers have little economic incentive to move sourcing out of Bangladesh or other low-cost countries so as to reduce the risk of being involved in such events. We discuss the implications of our results for retailers, non-governmental organizations (NGOs), garment factory owners in Bangladesh, the Bangladeshi government, and academic researchers.
... Findings show that firm financial performance can be affected negatively by risks [28]. For instance, Jacobs and Singhal [29] provide evidence on the effect of the Rana Plaza disaster in Bangladesh on the financial performance of garment firms. Jacobs and Singhal [11] provide empirical evidence on the impact of Volkswagen diesel emissions scandal on the financial performance of firms in the global automotive industry. ...
... The 2011 GEJE lost on average − 5.21 % shareholder value of firms during the one-month period from the GEJE [30]. The Rana Plaza disaster was not statistically significant on the CAR of the firms [29]. In some ways, this makes the pandemic unique and unprecedented in the effect on shareholder wealth and economic returns; not seen in any other study. ...
... Hendricks et al. [30] found that GEJE suffered one-month period CAR. Jacobs and Singhal [29] just study the ten-day CAR for Rana Plaza disaster. This length may have to do with recovery not being complete given the limited geographical impact and speaks to a global economic network. ...
... Another set of market actors-shareholders and investors-can significantly shape organizational practices and have substantial power to compel lead organizations to improve working conditions. However, research suggests that it is primarily a subset of ethical investors who prioritize these issues and that poor working conditions have had minimal impact on the relationships between lead organizations and the broader investor and shareholder community (Birkey, Guidry, Islam & Patten, 2018;Cousins, Dutordoir, Lawson & Neto, 2020;Jacobs & Singhal, 2017;Kim, Wagner & Colicchia, 2018). For instance, Jacobs and Singhal (2017) find no evidence of significant stock market reaction during the 11 trading days (approximately two weeks in calendar time) following the Rana Plaza disaster. ...
... However, research suggests that it is primarily a subset of ethical investors who prioritize these issues and that poor working conditions have had minimal impact on the relationships between lead organizations and the broader investor and shareholder community (Birkey, Guidry, Islam & Patten, 2018;Cousins, Dutordoir, Lawson & Neto, 2020;Jacobs & Singhal, 2017;Kim, Wagner & Colicchia, 2018). For instance, Jacobs and Singhal (2017) find no evidence of significant stock market reaction during the 11 trading days (approximately two weeks in calendar time) following the Rana Plaza disaster. This indicates that, while ethical investment is growing, it has not yet reached a level where it can universally influence the behavior of lead organizations. ...
In global supply chains, subpar working conditions are a critical issue affecting organizations, workers, civil society, and policymakers alike. Our objective is to evaluate the approaches to improve working conditions within global supply chains and their implications. Through a comprehensive review that integrates insights from various social science disciplines, we offer a fresh perspective on this challenge. We begin by identifying factors at multiple levels—supply chain, workplace, individual, and institutional—that contribute to poor working conditions, and explore how these factors, in some configuration, contribute to poor working conditions in different sample archetypes of global supply chains. We then present the factors driving lead organizations to improve working conditions in their global supply chains. Next, we dissect the transactional and relational approaches commonly implemented by lead organizations, assessing their mechanisms and effectiveness. Our review indicates that these approaches have limited success. As an alternative, we synthesize diverse insights to introduce a systemic approach grounded in three pivotal mechanisms: cooperation, recognition, and evolution. This approach aims to tackle the multifaceted factors affecting working conditions. To advance the systemic approach, we propose critical research questions that pave the way for future studies.
... A reação do mercado financeiro frente a desastres corporativos tem sido fonte motivadora de recentes pesquisas empíricas no cenário internacional, podendo ser destacados aquelas realizadas a partir do acidente nuclear em Fukushima-Daiichi no Japão (Hendricks et al., 2019) e do desabamento do Rana Plaza em Bangladesh (Jacobs & Singhal, 2017). ...
... As características do caso estudado, envolvendo a análise de 221 empresas de 32 países localizados nos cinco continentes, podem ser consideradas elementos importantes para uma melhor compreensão acerca do comportamento dos mercados de capitais em situações de desastres corporativos, em especial naquelas que possam ser enquadrados como fruto de irresponsabilidade social corporativa. De forma diversa ao esperado, um efeito negativo nas ações das companhias presentes na cadeia de suprimentos estendida da empresa-fonte, que seria esperado em virtude do aspecto reputacional e à luz e dos pressupostos de contágio reputacional, parece ter sido suplantado pela substituição de oferta e demanda, em linha ao observado no caso "Rana Plaza" (Jacobs & Singhal, 2017;Koenig & Poncet, 2022). ...
O estudo analisou as implicações do desastre de Brumadinho nas ações da cadeia de suprimentos da Vale. A pesquisa abrangeu 221 empresas de 32 países em uma janela de eventos de 90 dias. Retornos anormais foram empregados para avaliar o comportamento dos ativos na cadeia de suprimentos estendida da Vale, incluindo fornecedores, fornecedores de fornecedores, clientes e clientes de clientes. Surpreendentemente, a reação negativa observada nos ativos da Vale não se estendeu à sua cadeia de suprimentos. Isso contradiz a expectativa de contágio reputacional, sugerindo uma discrepância entre a literatura e a realidade em casos de irresponsabilidade social corporativa.
... Initial publications on these topics provide mixed results. Jacobs and Singhal (2017), in a study focused specifically on the aftermath of the Rana Plaza disaster, discovered that 39 retailers sourcing from Bangladesh did not suffer from significant stock market punishment. Conversely, Kim et al. (2019) and Kim and Wagner (2021) found that announcements about corruption, as well as product and process-related sustainability transgressions, negatively affect the stock market performance of buying firms. ...
... Our study joins a conversation on the impact of supply chain sustainability transgressions on buyers' stock prices. Some previously published studies did not find an effect of the transgressions (Jacobs & Singhal, 2017), whereas others did (Kim et al., 2019;Kim & Wagner, 2021). Utilizing the largest sample in terms of the number of transgressions (see Appendix 5) from three continents and the largest set of sustainability issue types (see Appendix 1), applying careful filtering techniques comprising various exclusion criteria, controlling for various potentially confounding influences, and conducting a large amount of robustness tests, we arrive at a rigorous estimation of the economic impact of supply chain sustainability transgressions. ...
In a globalized world, buying firms increasingly face criticism regarding sustainability-related transgressions in their supply chains, yet scholarship concerning whether such negative press has any bottom-line effects has only just begun emerging. This study develops and tests theory on the relationship between reported supplier sustainability incidents and the associated stock price impact for the buying firm. An event study comprising 1,699 events related to 374 buying firms supports our hypothesis that media coverage of environmental, social, or governance-related transgressions in the supply chain results in decreased market capitalization for the buying firm. A subsequent regression analysis indicates that the influence potential of information intermediaries, the country-level sustainability risk of the supplier, and the industry-level sustainability risk of the buying firm all affect the magnitude of the investors’ reaction. Conversely, the severity of the incident does not predict the magnitude of the stock price reaction.
... The operations management literature has for decades explored how firms can become more environmentally and socially sustainable (e.g., Klassen & Whybark, 1999). Yet, a small but significant number of firms continue to take the risk of neglecting their environmental and social responsibilities (Huq, Chowdhury, & Klassen, 2016;Jacobs & Singhal, 2017;Pagell & Gobeli, 2009;Wilhelm, Blome, Bhakoo, & Paulraj, 2016). Recent examples include sweat shop labor in Zara's supply chain and Mattel selling toys coated in toxic paint (Burgen & Phillips, 2011;Wilhelm et al., 2016). ...
... Operations management research generally addresses these issues indirectly by including environmental and social concerns in research examining more responsible or sustainable behavior (Pagell & Shevchenko, 2014). The operations management literature has, with a few notable exceptions (e.g., Jacobs & Singhal, 2017), not explored the drivers of irresponsible behavior. Our research focuses on irresponsible behavior by exploring the role of operations management in violating or breaching environmental and safety regulations. ...
Through the development and usage of an agent-based model, this article investigates firms' adaptive strategies against disruptions in a supply chain network. Viewing supply chain networks as complex adaptive systems, we first construct and analyze a realworld supply chain network among 2,971 firms spanning 90 industry sectors. We then develop an agent-based simulation to show how the model of firms' adaptive behaviors
can leverage competition relationships within a supply chain network. The simulation
also models how disruptions propagate in the supply chain network through cascading
failures. With the simulation, we seek to understand if a firm's adaptive behaviors can
reduce the impact of disruptions in supply chain networks. Therefore, we propose,
evaluate, and analyze two types of adaptive strategies a firm can leverage to reduce the
negative effects of supply chain network disruptions. First, we deploy in our model a
reactive strategy, which restructures the network in response to a disruption event
among first-tier suppliers. Next, we develop and propose proactive strategies, which
are used when a distant disruption is observed but has not yet hit the focal firm. We
discuss the implications related to how and when firms can improve their resilience
against supply disruptions by leveraging adaptive strategies.
... First, the S&P 500 is widely considered the leading U.S. market index and one of the most important market indices globally. Hence, the index has often been used and validated in previous empirical studies to capture U.S. stock market effects (e.g., Cziraki et al., 2021;Jacobs & Singhal, 2017). Second, all 500 constituents are heavily traded NYSE or NASDAQ stocks. ...
... Known as event-date clustering, this may cause cross-sectional dependence in abnormal returns. The robust BW t-test is commonly applied to account for this effect (e.g., Hendricks et al., 2020;Jacobs & Singhal, 2017). The test statistic for a single day is given by, ...
The COVID-19 pandemic requires firms to adequately respond. In this study, we first explore in our empirical data how firms responded to the COVID-19 crisis and identify five tactical response types, operational, digitalization, financial, supportive, and organizational responses. Furthermore, our findings indicate that responses vary in scope; Some firms act on their own, while others engage in collaborations. Finally, we find that the response angle is different across firms, as some firms leverage potential and others primarily mitigate risk. Second, we follow an event study design to measure the financial implications of these responses. We find that responses to the COVID-19 pandemic generally entail a positive stock market reaction. Financial and digitalization responses, as well as risk mitigation responses, are consistently evaluated positively. We discuss our findings in context of different theoretical lenses, substantiating the emerging literature on the COVID-19 crisis, and the established literature on crisis response management.
... As a result, companies can benefit from lower costs, although there are also higher risks in the context of a lack of worker protection. If accidents occur on this basis, buyers and governments attempt to introduce mechanisms to promote responsible sourcing (Jacobs and Singhal 2017;Zarei et al. 2020). The trigger for this is consumer awareness of the consequences of irresponsible sourcing (Agrawal and Lee 2016). ...
Although employee matters and human rights matters directly affect the corporate environment, research in this area remains nascent. To obtain evidence on the extent of corporate compliance with due diligence obligations, sustainability reporting has been analyzed. Grounded in institutional theory, this study examines the effects of regulation, the degree of professionalization, and sector-specific variations. The research employs a qualitative-interpretative content analysis, focusing on the reporting behaviour of 12 listed companies in Germany from both high-risk and low-risk sectors. The reporting periods selected are 2017 and 2021, chosen to examine the impact of regulations under the Non-Financial Reporting Directive 2014/95/EU (NFRD) and the Second Shareholder Rights Directive. The results show that regulation influences the disclosure of employee matters and human rights matters. Furthermore, there is a difference in the level of specificity regarding these matters, as well as in terms of opportunities and risks. The intensity of regulation also has an impact on the comparability and quality of reporting. By analyzing the reporting behaviour concerning two central social matters, this study compares the disclosure of employee matters and human rights matters, thereby contributing to the broader understanding of corporate social responsibility as well as gaining knowledge regarding sustainable corporate governance processes fostering the transformation towards sustainability-related actions across different sectors. In addition, the study examines both existing (NFRD) and forthcoming Corporate Sustainability Reporting Directive (CSRD) EU reporting obligations within a unified research framework, thus contributing to the advancement of sustainability reporting from an institutional theoretical perspective.
... Measured across numerous events, it seems that the publication of news on sustainability transgressions in the sphere of the supplier leads to market value loss for the buying firm (Mateska et al., 2017;Kim et al., 2019;Kim & Wagner, 2021), with stock market reactions amplified by the influence potential of the media, the country-level sustainability risk of the supplier, and the industry-level sustainability risk of the buying firm (Mateska et al., 2023). However, the Rana Plaza factory collapse as one of the worst industrial disasters in history in terms of human lives lost did not trigger a significant stock market reaction for the involved retailers, according to Jacobs & Singhal (2017). ...
Purpose: This study aims to shape the future trajectory of scholarly research on traditional, reputational and societal supply chain risks and their management.
Design/methodology/approach: The research employs a narrative literature review of the overview type. In order to control bias stemming from the subjectivity of our methodology, we synthesized the relevant literature transparently and established various safeguarding procedures.
Findings: The established research stream on traditional supply chain risk has generated a wealth of concepts that can potentially be transferred to the study of reputational and societal risks. The maturing research stream on reputational risks has mostly focused on risk manifestation, from the upstream perspective of the focal firm. The emerging scholarship on societal supply chain risks has anecdotally highlighted detrimental effects on contextual actors, such as society-at-large.
Research limitations/implications: The study shifts scholarly attention to the role of the context in the risk manifestation process-as a potential risk source for traditional supply chain risk, during the risk materialization for reputational supply chain risk, and as the locus of the risk effect for societal supply chain risk.
Originality: This review is unique in that it fosters a holistic understanding of supply chain risk and underscores the increased importance of the context for it. The socioeconomic , institutional and ecological contexts connect the three reviewed research streams. Detailed research agendas for each literature stream are developed, comprising 23 topical areas in total.
... In addition to the Walmart and blood cobalt examples mentioned earlier, another notorious example of such moral disengagement over time is the Rana Plaza incident, where evidence shows that the global buying firms were aware of poor working conditions in Bangladesh long before the Rana Plaza incident, even as early as 2005 with the collapse of seven-story spectrum garment factory Palashbari in Ashulia, Bangladesh. Despite this and earlier similar incidents in Dhaka, such as Tazreen factory fire that killed more than 100 garment workers, no concrete actions were taken by buying firms to improve working conditions (Jacobs and Singhal 2017;Kim, Wagner, and Colicchia 2019). Even after the Rana Plaza incident, and despite pressures on global buying firms to sign and abide by the Bangladesh Accord on Fire and Building Safety, these pressures have shown to have little impact as the conditions of garment workers in Bangladesh remain poor (Pal 2024). ...
Sustainability incidents (e.g., human rights violations, pollution, bribery, etc.) in supply chains continue to manifest globally. Yet, evidence from practice shows such incidents tend to recur within the same supply chains despite stakeholder attention. We investigate the manifestations of supplier sustainability incidents (SSIs) and purchasing managers' reaction to them over time, looking for traces of the slippery slope effect. We also test whether moral disengagement and psychological distance can further impact decisions toward SSIs. Through a series of experiments on both social and environmental SSIs and a follow‐up qualitative study (683 participants in total), we find evidence for the impact of moral disengagement and psychological distance on purchasing managers' reaction to SSIs. However, results for the slippery slope effect were mixed. Our supplementary qualitative study found evidence for the slippery slope effect, as well as moral licensing/cleansing and moral psychology.
... We analyzed stock market 2 Diffusion theory suggests that transparency can hinder the spread of irresponsible practices by increasing the likelihood of public or regulatory backlash (Briscoe and Murphy, 2012;King, 2008). The risk of reputational damage should serve as a deterrent against irresponsible behaviors, under the assumption that the market severely punishes such misconduct (Jacobs and Singhal, 2017). However, this is not always the case, as demonstrated in China. ...
... Studies exploring strategic implications of outsourcing note that the benefits of low-cost outsourcing are accompanied by supply risks, process control challenges, and environmental costs (Christopher et al., 2011;Jain et al., 2014). Even if a major supplier disaster-such as the Rana Plaza accident that claimed 1133 lives and over twice as many injuries-or the initiatives taken in response may have insignificant economic impacts on retailer's market valuations (Jacobs & Singhal, 2017), benefits of low-cost outsourcing may be outweighed by coordination costs amid information complementarity between (8) the upstream and downstream activities, especially when configuration and task complexity is high (Reitzig & Wagner, 2010;Larsen et al., 2013;Cohen et al., 2018). This study examines such interaction between O2S and sourcing decisions. ...
A growing body of literature examines the demand effects of the increasingly popular retailing strategies of integrating digital sales channels with brick-and-mortar stores, allowing customers to buy goods online for store pick-up. Implications of such initiatives have been explored for retailing but often ignored for the associated (upstream) sourcing strategy, which affects a critical success factor: product availability. To capture the full implications of online-to-store (O2S) initiatives, we present an analytical model of the end-to-end supply chain of a brick-and-mortar retailer expanding its market via O2S. We derive equilibrium product availability involving sourcing strategy and consumer choice in pre-and post-O2S cases to provide four insights into the interdependence of O2S and sourcing strategies. First, market expansion via O2S is moderated by the retailer's sourcing strategy and is achievable with only a subset of suppliers under certain conditions. Second, O2S introduction can render an existing supplier economically infeasible. This impact is exacerbated when the cost of processing goods returned by the retailer's O2S customers is high. Third, a market-expanding O2S strategy is profitable only in limited circumstances and can lower the retailer's profit even if the probability of product returns is small and returns processing is costless. Fourth, in some cases, it is beneficial for the retailer to change its supplier (e.g., from cost-efficient to demand-responsive) after introducing O2S. These results highlight the need to jointly plan the retail and sourcing strategies in a multi-channel environment to optimize the end-to-end supply chain.
... Colapsa y acaba con la vida de aproximadamente 1.134 personas y deja a 2.438 heridos. (Jacobs and Singhal, 2017) Una sobreviviente relató como los trabajadores se quejaban diariamente por las grietas presentes en el edificio, señalando la inseguridad y negligencia que tuvo la empresa ante ellas, y la aceptación de los trabajadores a continuar exponiéndose a este entorno inseguro con el único fin de mejorar las condiciones de vida de sus núcleos familiares. (Fitch et al., 2015) Por otra parte, la producción de prendas trae problemas en la salud humana debido a que las emisiones crean compuestos orgánicos volátiles, material particulado y algunos gases ácidos como el cloruro de hidrógeno, debido a la falta de ventilación los trabajadores son expuestos a inhalar estos compuestos que conducen a enfermedades respiratorias, diferentes tipos de cáncer e inclusive la muerte. ...
La industria textil a nivel global es la segunda manufactura más contaminante, responsable del 20% de las aguas residuales y el 10% de las emisiones de carbono del mundo. Por lo tanto, esta investigación tiene como objetivo principal identificar estrategias sostenibles para el aprovechamiento de textiles provenientes de la moda rápida. Por tal motivo, se recopiló información de bases de datos para buscar estrategias eco-sostenibles para la industria textil, involucrando los objetivos de desarrollo sostenible (ODS) 12 y 8, la economía circular y modelo de negocio que se basó en 4 pilares fundamentes: diseño de producto, valor y recurso para el cliente, colaboración con organizaciones y modelo de suministro, con el fin de eliminar la cadena lineal de producción y consumo insostenible del Fast Fashion. Finalmente, al implementar estrategias alternativas sostenibles para el aprovechamiento de textiles, se generan avances tecnológicos en la gestión de la industria, contribuyendo al beneficio de 92 millones de toneladas de residuos anuales provenientes de la moda.
... Moreover, event day (Day 0) recorded negative CAR (−0.0192). In line with the previous studies (Chambers & Penman, 1984;Hendricks et al., 2009; Jacobs and Singhal, 2017;Sturm, 2013), this is an indication that GSE witnessed negative stock market reaction on the event day but the reaction is not significant. The distress performance of GSE deepened the next day as the market plunged marginally by 0.09%. ...
The purpose of this study is to estimate the economic value of intra-industry information transfers within Ghana’s banking industry due to the collapse of seven banks. This is a short-term study with an event window [−10, +10] and an estimation period of 200 trading days. The event study methodology is adopted to estimate the cumulative abnormal return (CAR) gained by other rival industry banks as well as to calculate the cumulative average abnormal return (CAAR) for the entire Ghana Stock Exchange (GSE). The results of the study show that the collapse of the seven banks does convey information that the market uses in revising stock prices. However, most of the rival banks experienced an insignificant share price reaction. This insignificant reaction can be attributed to the fact that GSE is not efficient. The study recommended among others, for the GSE to be reformed to improve the efficiency of the market and secure the flow of information to market participants.
... Örneğin sosyal ve çevresel açıdan sorumlu olduğunu beyan eden bir şirketin, çevreyi kirleten veya çalışanlarına kötü davranan bir tedarikçiyle iş yapması durumunda yeşil aklama gerçekleşebilir. Özellikle şirketlerin az gelişmiş/ gelişmekte olan ülkelerden kaynak bulma stratejileri bu durumun en önemli tetikleyicileri arasında yer almaktadır (Jacobs & Singhal, 2017). ...
Günümüzde gelişen teknolojik imkânlar ve yaşanan dijitalleşme süreçleri her alanda olduğu gibi pazarlama alanında da derinden hissedilmektedir. Geleneksel pazarlama stratejilerine büyük bir alternatif olarak kullanılmaya başlanan modern pazarlama stratejileri, dijitalleşen mecralarda yer alan tüketicileri etkileme ve satın alma davranışlarını anlayabilme noktasında pazarlama araştırmalarının önemini oldukça ön plana çıkarmaktadır. İçinde bulunduğumuz dünyada hem firmaların, hem de bireylerin var olma çabaları, dijital kanalları kullanarak hedef pazarlarındaki müşterilere ulaşma ve onları etkileyebilme gücüyle büyük oranda paralellik göstermektedir. İşte tam da bu noktada dijitalleşmeyi anlayabilmek ve geleneksel yöntemlerden farklı olarak dijitalleşme odaklı pazarlama araştırmaları yapabilmek kitabımızın temel amacını oluşturmaktadır. Türkiye’nin kıymetli üniversitelerinden, alanında uzman değerli hocalarımız tarafından oluşturulan bölümler, dijitalleşme ve pazarlama araştırmaları alanında teorik altyapı oluşturmak, güncel konular hakkında literatüre katkı sunmak, var olan problemlere yönelik çözüm önerilerinde bulunmak ve farklı disiplinleri bir arada buluşturmak için özenle yazılmıştır. Yapay zekâ, marka bağımlılığı, sürdürülebilir marka yönetimi, deneyimsel pazarlama, dijital dönüşüm ve haberleşme inovasyonu, femversiting ve tedarik zinciri bakış açısıyla firmaların yeşil aklama ile başa çıkma stratejileri gibi alanı konu ve başlıklardan oluşan bu kitap pazarlama literatürüne katkı sağlamayı hedeflemektedir. Bu eserin ortaya çıkmasında büyük bir öz veri ile katkı sağlayan bütün akademisyenlerimize ve bu yolda yürümeye kararlı olan doktora öğrencilerimize sonsuz teşekkürlerimi ve şükranlarımı sunuyorum. Doç. Dr. Emrah Sıtkı YILMAZ
... As greenwashing can be perceived as a difference between a company's claims and actual behavior to minimize the environmental impact (Kapitan et al., 2019), it is clear that greenwashing frequently occurs at the supply-chain level (Pizzetti et al., 2021). Some illustrative examples can be traced back to 1997 with Nike's sweatshop scandal (Bartley, 2009), to 2013 with the Rana Plaza disaster, with low implications for retailers as they do not have economic incentives to move sourcing out of low-cost economies (Chowdhury, 2017;Jacobs and Singhal, 2017). More recently Zara, a fast-fashion giant, was found announcing a new platform, Zara Pre-Owned, designed to give Zara clothing articles a new life, through second-hand purchase and repairs, which was found later on throwing away previous collections, allegedly practicing greenwashing (Hardcastle, 2022). ...
... Moreover, much of the research on SSCM adopts an instrumental or triple bottom line approach to sustainability, prioritizing sustainable practices that will enhance firm financial performance (Gao & Bansal, 2013;Gold & Schleper, 2017). This instrumental approach is illustrated by the wealth of studies that ask whether it pays to be green/good (Ambec & Lanoie, 2008;Javed et al., 2016;Pagell & Shevchenko, 2014) and examine relationships between sustainable practices and firms' financial performance (e.g., Jacobs & Singhal, 2017;King & Lenox, 2002;Yadlapalli et al., 2018), rather than examine realized positive or negative externalities for the environment and society. By prioritizing profit, research that focuses on financial instrumentality detracts from the pursuit of sustainability that goes beyond being "less unsustainable" (Pagell & Wu, 2009). ...
Patagonia, Inc. is widely recognized as a leading brand in sustainable supply chain management in the garment industry, an industry known for its sustainability shortcomings. This study examines Patagonia's supply chain practices through a social‐symbolic work lens. It describes the intentional material work related to Patagonia's inputs, throughputs, and outputs, and also its complementary relational and discursive work. We argue that Patagonia's relational and discursive work are crucial to understanding how Patagonia (a) pursues sustainable supply chain practices, (b) influences its stakeholders to support sustainability, and (c) has positive spillover effects beyond its primary stakeholders. Incorporating a social‐symbolic work lens draws attention to important theoretical and managerial insights—in particular, the need for a holistic rather than reductionist approach and the merit in creating self‐reinforcing positive feedback loops—which are prone to be overlooked in conventional studies of sustainable supply chain management.
... The effect of suppliers' irresponsible behavior can propagate across the supply chain from upstream to downstream, leading to a loss of profits and reputation for downstream firms (Hartmann and Moeller, 2014;Hajmohammad et al., 2021). For example, the stock market reacted negatively to downstream retailers whose suppliers were involved in the Rana Plaza disaster (Jacobs and Singhal, 2017). The identification of corporate social responsibility (CSR)related risks, the evaluation of their effects, and the development of tools and approaches to mitigate these risks are critical issues for supply chain managers and scholars (Giannakis and Papadopoulos, 2016). ...
Purpose
The growing focus on socially responsible supply chain management (SRSCM) has made it crucial to extend corporate social responsibility (CSR) to upstream suppliers. Drawing on resource dependence theory, this study aims to examine how supplier dependence upon socially responsible buyers impacts suppliers' CSR performance and how this relationship is moderated by network prominence and demand uncertainty.
Design/methodology/approach
The proposed hypotheses are tested using regression analysis with Heckman's two-stage model and a dyadic supply chain dataset constructed based on publicly traded Chinese firms between 2008 and 2016. This time window is selected due to a one-year lag of the dependent variable and the change in evaluation methods of the database providing CSR performance in 2018.
Findings
The empirical results indicate that supplier dependence upon socially responsible buyers is positively associated with suppliers' CSR performance. However, this positive relationship is attenuated when suppliers occupy a prominent position in the network or when they face high demand uncertainty.
Originality/value
This study extends knowledge about the role of relationship dependence in implementing SRSCM by highlighting its positive impact on suppliers' CSR. Thus, this study contributes to the buyer–supplier relationship literature and the power and relationship dependence literature. This study further advances the understanding of the factors that influence suppliers' behavior by exploring the moderating roles of network prominence and demand uncertainty. The results have several practical implications for managers and policymakers.
... On April 24, 2013, only five months after the fateful Tazreen Fashion Factory fire tragedy, another garment manufacturing factory building-the Rana Plaza collapsed, killing or injuring thousands of workers who were employed at just 25 US cents an hour [23]. According to Jacobs and Singhal [24], the magnitude of the disaster enhanced awareness regarding underlying structural risks and detriments of sourcing from developing countries, and the urgency to reform supply chain governance mechanisms for better workplace environments. ...
Findings primarily drawn from literature review and interviews with professional resource persons suggest that although the RMG industry of Bangladesh has made substantial progress in correcting structural risks within factory buildings, fire still remains an unresolved issue posing unceasing threat to safety. These findings are significant for all stakeholders within the global supply chain network of Bangladesh, concerned with improving sustainability of the RMG industry and seeking to outline the responsibilities for each group of actors towards preventing building disasters. Both Tazreen Fashion fire incident and the Rana Plaza building collapse served as ‘critical junctures’ in rapid transfer of physical technology to enhance structural safety and streamline production planning within the RMG manufacturing factories within Bangladesh. However, the transfer of social technology within the supply chain network of a developing nation in areas such as development of organisational safety culture or promoting workplace ethics, requires long-term planning and prolonged practices. The paper thus concludes that in developing countries, transfer of physical technology is more readily achievable than the adoption of social technology.
... Retailers are the last downstream firms within the supply chain, as they are responsible for offering fashion and apparel products to the final consumers (Louis, Lombart, and Durif 2019). Since 2010, the fashion market has witnessed the rise of companies announcing their commitment to sustainable issues through public environmental and social policy statements (Jacobs and Singhal 2017). It is becoming easier to identify established (e.g., Marks and Spencer, H&M, Vivienne Westwood) and specialist sustainable apparel brands (e.g., People Tree and Linda Loudermilk) that incorporate ethical features into their products (Goworek et al. 2020). ...
This study sought to examine new marketing ethics (ME) practices that can foster strong moral grounding in the fashion and apparel retail firms to delineate a new approach within this industry. We built on the distributive justice and stakeholder orientation literature to conduct a multi-case study with 15 self-proclaimed ethical fashion and apparel retailers to identify whether and how they differ from traditional and fast fashion retailers. Several data collection techniques were used to gather the evidence (i.e., direct observation, physical and online interviews) combined with a netnographic approach (i.e., online observation of websites and social media content). Our findings show that these firms are guided by ethical-centered values, which are reflected in their product components, purpose, communication practices, and sourcing practices, which point to the emergence of a new business approach. We contribute to the macromarketing literature by identifying a new perspective on the role of morality in ME based on distributive justice principles and stakeholder orientation. We also propose a more refined definition of ethical fashion and apparel retailers.
... Several garment companies with a total workforce of around 5,000 people were housed in the structure. Recovery attempts took many days due to the nature of the catastrophe site and the need to avoid further injuring survivors; the final survivor was recovered on May 10, 16 days after the building collapsed [29]. It is Bangladesh's worst fire disaster, with 1,134 persons died. ...
The readymade garment industry in Bangladesh is one of the foremost significant export-oriented industries, but it faces issues in ensuring worker safety. Industrial accidents threaten workplace safety, which is additionally amongst the foremost critical challenges in the world's industries. The objectives of this paper are to explore the numerous lethal incidents in the industry in Bangladesh and also explore the causes for these lethal incidents with the effect of those incidents. This paper aims to present a case study of the working conditions of readymade garment industries in Bangladesh and the case study presented past and running unsafe working conditions in the industry of violations of human rights and the high prevalence of injuries on duty by the workers. Differing kinds of causation in the recent decade have made the Bangladeshi garment industry ambiguous. Among 4,560 garment industries, 237 lethal incidents happened and that ratio was 5.2% during the last 31 years (1990-2020). Almost 237 lethal incidents, 94.09% incidents occurred by fire and only 1.27% incidents were caused by building collapse and 3.38% incidents were caused by boiler burst and another 1.27% by other different incidents. The total number of harmed people was 6,870 of which 1,689 people were injured and 5,181 people died, also the highest incident happened from 2011 to 2015 when 3,800 people were injured and 1,287 people died. This paper will investigate around for the causes of the various incidents and can expose the precautionary measure for those problems in the fashion industry which affected their sustainability and profitability.
... For instance, Hendricks et al. (2020) found that the 2011 Great East Japan Earthquake caused an average decline of 5.21% in affected firms' shareholder wealth. Jacobs and Singhal (2017) found that the 2013 Dhaka Rana Plaza accident did not significantly impact stock returns for global apparel retailers procuring from Bangladesh. Our study echoes previous research and provides empirical evidence that supply chain disruptions in COVID-19 caused more severe consequences than other disruptive events (Ivanov and Dolgui, 2021). ...
Purpose
This study examines the firm-level financial consequences caused by supply chain disruptions during COVID-19 and explores how firms' supply chain diversification strategies, including diversified suppliers, customers and products, moderate the negative effect on firm performance.
Design/methodology/approach
Based on data drawn from 222 publicly traded firms in China, the authors use event study methodology to estimate the effects of supply chain disruptions on the financial performance of affected firms. Regression analyses are conducted to examine the moderating effects of supply chain diversification.
Findings
Firms affected by supply chain disruptions during COVID-19 experienced a significant decline in shareholder value in two weeks and a subsequent decrease in operating performance in one year. Diversified suppliers, customers and products act as shock absorbers to alleviate the negative effects. Further regression shows a substitution effect between customer and product diversification. Cross-industry comparisons reveal that service firms experienced more loss than manufacturing firms. Customer diversification mitigates the adverse effects of supply chain disruptions for both manufacturing and service firms. Supplier diversification exerts a noteworthy role in manufacturing firms, while product diversification is beneficial for service firms.
Originality/value
The study provides empirical evidence on the magnitude of financial consequences of supply chain disruptions during COVID-19 in both the short term and long term and enriches the current understanding of how to build resilience from the supply chain diversification perspective.
... We argue that this especially applies to rather novel relationships, such as public reactions to firm and supply chain events. The seminal work by Hendricks and Singhal (2003), for instance, has been replicated several times, with each replication adding more validity and insight (e.g., Bai et al., 2021;Lo et al., 2018;Jacobs and Singhal, 2017). In contrast to Schmidt et al. (2020), we utilize a different data set covering a shorter time frame but relaxing some inclusion criteria to also capture local low-impact glitches. ...
... The following studies also examined stock market reactions after the GEJE and found similar patterns (Jaussaud et al., 2015;Takao et al., 2013;Tao et al., 2019). In a study of a man-made event, the Rana Plaza building collapse, Jacobs and Singhal (2017) provide insights into the affected retailers' stock market losses and short-lived value losses. These studies suggest investors are concerned about risks and react when events occur, which suggests that firms may feel an obligation to respond. ...
This study examines inventory and flexibility patterns in manufacturing firms in the years following a low‐probability, high‐consequence (lp‐hc) event, the Great East Japan Earthquake of 2011. We find patterns suggesting that most firms exposed to the event began to increase their raw material inventories over the longer term and increased their volume flexibility for a shorter period. Furthermore, we found that firms increased their raw material inventories mainly when inventories were already at high levels, while the opposite is true for volume flexibility. Firms that were classified as risk averse before the event show stronger swings after the event. Preliminary explorations suggests that the performance of firms that have engaged in these inventory shifts is significantly impeded. This study provides insight into a previously unexplored phenomenon, namely the longer‐term responses of firms to exposure to lp‐hc events. It opens the possibilities of new research regarding causality, economic consequences, and mechanisms of the identified patterns. Increased efforts in this direction should enable our discipline to provide improved normative guidance both socially and operationally. Further, this research direction enables the development of improved insights regarding the business consequences of lp‐hc disruptive events. This article is protected by copyright. All rights reserved
... First, providing empirical evidence for the negative impact on shareholder value, we advance the ongoing debate on the COVID-19 pandemic (Sodhi, Tang, and Willenson 2022;Ivanov 2022;Ketchen and Craighead 2020;Ivanov "Viable supply Chain Model: Integrating Agility," 2020). We also extend the general body of work on adverse supply chain events, such as delays and disruptions, by studying an unprecedented and structurally different phenomenon (Liu et al. 2022;Giannoccaro and Iftikhar 2022;Xu et al. 2020;Jacobs and Singhal 2017;Bode et al. 2011). In a post-hoc test, we further show that there are significant differences between U.S. and Chinese firms, and across industries, regarding both the magnitude and persistence of the negative effects on shareholder value. ...
The financial implications of the worldwide COVID-19 pandemic and the effective mitigation of the negative effects are the subject of an ongoing debate. We aim to empirically substantiate this debate. Based on a sample of 4,032 publicly traded U.S. and Chinese firms, we conduct an event study and find that the COVID-19 pandemic is associated with a substantial decrease in shareholder value, significantly varying between U.S. and Chinese firms and across industries. We further identify structure- and supply chain-related firm factors that mitigate the negative impact. Specifically, we find that smaller firms experience a less negative impact on shareholder value, challenging established findings. Our results also suggest that a lower dependence on physical assets, a shorter trade cycle, and a higher degree of vertical integration attenuate the negative impact on shareholder value. Our findings provide important insights for managers and policymakers. We recommend managers to reduce the dependency on business models that strongly rely on physical assets, to streamline trade cycles, and to reduce supply chain complexity. From a policy perspective, we emphasise the importance of more industry-specific granularity of public support measures.
Academic scholars and US political leaders have called for a better understanding of the connection between public policy and supply chain resilience. In this structured literature review we analyze and synthesize literature published in high‐quality public policy and business journals at this intersection. We leverage existing frameworks in public policy and supply chain resilience to help analyze the relationships studied to date, resulting in a conceptual framework that elucidates the connections between public policy and resilience and leads to the development of a platform for future research inquiries. We encourage and provide guidance for future work in the space from both supply chain management and public policy scholars that can drive actionable results for policymakers, firm decision‐makers, and the welfare of society.
measurement of e digital matutity
Environmental accidents (EAs) are firm operational failures that harm human health, the natural environment, and offending firms. We propose they also initiate a subtle form of activism among consumers living near the accident by stimulating increased “green” behavior. Using annual county‐level data in California from 2000 to 2015, we show that following an EA, consumers reduce the trash/garbage they generate and the energy they consume. The impact is long‐lasting and stronger when EAs are more severe and when consumers have pro‐environmental beliefs, ready access to information, and convenient access to “green” options, such as recycling. Since affected consumers may also refuse to buy from, invest in, or work for offending companies, the results suggest that firms should develop environmental strategies, which include engaging and collaborating with local communities. The study results also provide input for the development of initiatives, which maximize consumer “green” behavior after, or in the absence of, an EA.
The purpose of this research is to better understand how and why consumers pay attention to a firm's environmentally irresponsible sourcing practices. Using signaling theory, this research develops and tests a model that examines how a firm's intentionality and motive behind irresponsible environmental sourcing practices can signal a product's environmental characteristics to consumers. The findings suggest that consumers tend to view products as more environmentally harmful when they learn that a firm intentionally sources from irresponsible suppliers. Likewise, consumers are more likely to react unfavorably to a firm's products when a firm prioritizes profit motives over responsible sourcing practices. This research also offers insight into how a firm's corrective response strategy (e.g., mandatory vs. voluntary environmental supplier actions) could mitigate the adverse impact of the firm's environmentally irresponsible sourcing practices on consumer perceptions of environmental risk. The findings indicate that a firm's mandatory corrective actions targeted to its suppliers are more likely to be effective, whereas voluntary actions were found to be ineffective. Two experiments were conducted to test the study's hypotheses. Managerial and societal implications are also discussed.
Scholars in management science and operations management (MS and OM) continue to make significant contributions to the notion of “doing good with good operations.” Impressively, the MS and OM literature has developed several pro-social sub-streams, such as healthcare operations, sustainability, and nonprofit operations; however, to the best of my knowledge, there are only two studies in the top MS and OM journals that mention LGBTQ+-related terms in their abstracts, keywords, or introductions (one appeared in 1989 and the other in 2021). The LGBTQ+ community is an integral part of society, and the field has significant potential to impact the lives of its members economically and socially. MS and OM scholars could pay greater attention to research problems at the interface of operational decision-making and the LGBTQ+ community, which I term “rainbow operations.” This study advances LGBTQ+ diversity, equity, and inclusion within the MS and OM literature by invoking several existing studies and showcasing how similar state-of-the-art techniques and tools can be used to answer interesting, rich, and impactful research questions concerning rainbow operations. I present motivating examples and supporting statistics, discuss related work by MS and OM scholars, and suggest several avenues for future research around the following three themes: LGBTQ+ clients in service delivery settings, LGBTQ+ employees in contemporary workplaces, and LGBTQ+ community in global supply chains. My goal is to inspire MS and OM scholars to think more broadly about our discipline and offer valuable operations-related perspectives on research problems of relevance to the LGBTQ+ community.
Purpose
In this research, we explore the adverse impact of foreign ownership on operational security, a critical operational implication of the liability of foreignness (LOF).
Design/methodology/approach
The empirical analysis is based on a multi-country dataset from the World Bank Enterprises Survey, which contains detailed firm-level information from over 8,902 firms in 82 emerging market countries. We perform a series of robustness checks to further confirm our findings.
Findings
We find that a high ratio of foreign ownership is associated with an increased likelihood of security breaches and higher security costs. Our results also indicate that high levels of host countries’ institutional quality and firms’ local embeddedness can mitigate such vulnerability in operational security.
Originality/value
This study is one of the first to uncover the critical operational implication of the LOF, indicating that a high ratio of foreign ownership exposes firms to operational security challenges.
Recent attention to labor trafficking as an underaddressed part of human trafficking has added urgency to the need to improve corporate supply chain actions and policies. Through a cross-case analysis of data from the agricultural sector in the United States, this paper seeks to understand labor trafficking operations through a socio-technic systems theory lens and contributes to prior literature on labor trafficking in three important ways. First, we utilize a cross-case approach to explore labor trafficking operations through a network lens and derive insights into the interconnectivity and key players in each labor trafficking operation. Second, we outline the socio-technic practices of those labor trafficking networks that maintained ties to corporate supply chains. Hence, the scope of operations management socio-technic theory is widened to also include exploitative and harmful practices. Third, we elucidate the connections between corporate and labor trafficking systems to demonstrate that corporate responsibility does not exist in a vacuum and that the interplay between legal and illicit organizations is of critical importance in combating human trafficking. Altogether, this article provides an interdisciplinary perspective using insights from operations management theory, criminology, and network design. In doing so, the assessment of socio-technic dynamics between actors broadens the operations and supply chain frame of reference beyond corporate socio-technic systems to include the illicit systems they are connected to.
Este estudo possui como objetivo analisar a reação sobre o preço dos ativos da Vale, pares nacionais e internacionais, em decorrência do desastre de Brumadinho-MG em 2019. Acompanhando a literatura apresentada por Campbell et al. (1997), MacKinlay (1997) e Kliger e Gurevich (2014), a pesquisa adota a Abordagem de Estudo de Eventos (ESA) para avaliar o efeito sobre o retorno diário do apreçamento das ações decorrentes das informações divulgadas em torno do evento de interesse. O estudo possui relevância para a literatura por trazer o efeito de um evento corporativo sobre as empresas do setor, também é relevante para os investidores perceberem os danos que um evento catastrófico causa sobre o preço dos ativos da companhia diretamente envolvida e seus pares, considerando os danos reputacionais à sua imagem. Os resultados da Vale indicam que, inicialmente, o evento apresentou retornos negativos significativos, os quais se ajustaram no decorrer do período com a chegada de novas informações. Nos seus pares nacionais foram observadas variações pós-evento, apesar de alguns retornos não serem significativos ao longo do período. Nos pares internacionais, os resultados tiveram movimentação inversa aos da Vale, com retornos favoráveis às companhias. As contribuições do estudo são verificar a reação do mercado e como o setor foi afetado pela catástrofe, diante de desastres corporativos, e auxiliar os investidores a interpretar incertezas, em termos de gerenciamento de carteiras, frente a uma queda ocasionada por eventos inesperados.
Corporate social responsibility in supply chain management has its place in the theory and practice of companies, this particularly being the situation in foreign countries. The absence of research in the Slovak Republic is the main motivation for dealing with this topic. The paper explores different perspectives of the authors regarding the issue through analyzing scientific articles. Based on the available information, it explains the motivations for introducing responsible activities into supply chain management and suggests such activities that companies consider relevant for their suppliers to implement. It also provides an overview of the used research methods that enabled the authors to arrive at the presented conclusions. The paper underlines the importance of the topic by proposing the benefits of sustainable supply chain management implementation. It also inspires further research where the authors may use the proven research methods.
This article attempts to address two research questions using a large and longitudinal sample of manufacturing firms: (a) how does supply base (or supply-side) risk affect buying firm performance, and (b) how does the presence of supply chain executive in the firm’s top management team (TMT) moderate the performance effect of supply base risk? The study uses the Prowess database and Bloomberg to operationalize empirical proxies for supply base risk drivers. Panel data regression analyses are used to test the effect of supply base risk on buying firm performance considering Indian manufacturing firms. The results show that the supply base risk has a negative and significant effect on firm performance. Moreover, the findings of the study indicate that supply chain executive representation in the firm’s TMT alleviates the negative effects of supply base risk. This study develops an objective understanding of supply chain complexity by relying on secondary panel data.
The speed of recovery from supply chain disruption has been identified as the predominant factor in building a resilient supply chain. However, COVID-19 as an example of an evolving crisis may challenge this assumption. Infection risk concerns may influence production resumption decision-making because any incidents of infection may lead to further shutdowns of production lines and undermine firms' long-term cash flows. Sampling 244 production resumption announcements by Chinese manufacturers in the early COVID-19 crisis (February-March 2020), our analysis shows that, generally, investors react positively to production resumptions. However, investors perceived the earlier production resumptions were higher risk (indicated by declined stock price). Such concerns were exacerbated by more locally confirmed cases of COVID-19 but were less salient for manufacturers with high debts (liquidity pressure). This study calls for a reassessment of the current disruption management mindset in response to new evolving crises (e.g., COVID-19) and provides theoretical, practical, and policy implications for building resilient supply chains.
Supply chains’ broad operational capacity and their integrative potential are too relevant to be ignored. How-ever, they are sometimes pursued with limited care for global sustainability concerns. This research paper argues how comprehensive the incorporation of sustainability in supply chain management is, discussing the importance of promoting supply chains rooted in a sustainability mindset, which employs a systems perspective to contribute to the Sustainable Development Goals. Using four cases from the electronics sector, the study proposes a framework that could be used to assess the sustainability within supply chain management as an alternative for the traditional TBL perspective, analyzing the sustainability mindset dimensions: “Knowing” and “Doing”. Also, the paper emphasizes the gap between what companies’ supply chains declare and what they actually would do towards sustainability, proposing that the “Being” dimension of the sustainability mindset is still missing.
This article reviews extant multidisciplinary literature to uncover existing themes and directions in the knowledge of the overlap between natural resource scarcity and illicit supply chain activity. In doing so, the authors present a novel review of this nascent, complex, and multidisciplinary research area. This review has uncovered 127 articles that have not been synthesized or organized in a meaningful way with the supply chain literature. It extracts insights and develops a comprehensive process framework encompassing the following: (a) antecedents associated with natural resource extraction, which foments the opportunity for illicit activity to thrive; (b) resulting economic, social, and environmental outcomes from illicit activity as it relates to natural resource extraction; and (c) potential moderating processes, which either enable or inhibit illicit activity to occur, including firm‐level tactics that businesses can employ to counteract illicit activity throughout the supply chain and to promote sustainable long‐term operations. An extensive agenda is presented suggesting future research paths, methodologies, theories, and potential contributions.
This paper builds on the dynamic capability view to theorize the role of manufacturing planning and control (MPC) activities and supply chain risk management (SCRM) capabilities towards the firm's operational performance. The study hypothesize that companies enhance MPC activities to respond to supply chain uncertainty (SCU) and enable SCRM that positively impacts operational performance. Data from 356 manufacturing companies in developing countries and regions, drawn from the sixth version of the International Manufacturing Strategy Survey is used to examine the hypothesized model empirically. The findings indicate that the MPC activities effectively respond to SCU and act as an enabler of preventive and reactive SCRM. Furthermore, the paper finds that MPC activities drive operational performance through effective SCRM. Also, the findings suggest that preventive risk management practices impact operational performance only through reactive risk management. Finally, the paper enriches the literature by identifying and discussing the theoretical and managerial significance of the role of MPC activities in the association between SCU, risk management practices, and firm performance.
Drawing on propositions from social identity theory and signaling theory, we hypothesized that firms' corporate social performance (CSP) is related positively to their reputations and to their attractiveness as employers. Results indicate that independent ratings of CSP are related to firms' reputations and attractiveness as employers, suggesting that a firm's CSP may provide a competitive advantage in attracting applicants. Such results add to the growing literature suggesting that CSP map provide firms with competitive advantages.
Most theorizing on the relationship between corporate social/environmental performance (CSP) and corporate financial performance (CFP) assumes that the current evidence is too fractured or too variable to draw any generalizable conclusions. With this integrative, quantitative study, we intend to show that the mainstream claim that we have little generalizable knowledge about CSP and CFP is built on shaky grounds. Providing a methodologically more rigorous review than previous efforts, we conduct a meta-analysis of 52 studies (which represent the population of prior quantitative inquiry) yielding a total sample size of 33,878 observations. The meta- analytic findings suggest that corporate virtue in the form of social responsibility and, to a lesser extent, environmental responsibility is likely to pay off, although the operationalizations of CSP and CFP also moderate the positive association. For example, CSP appears to be more highly correlated with accounting-based measures of CFP than with market-based indicators, and CSP reputation indices are more highly correlated with CFP than are other indicators of CSP. This meta-analysis establishes a greater degree of certainty with respect to the CSP-CFP relationship than is currently assumed to exist by many business scholars.
We outline a supply and demand model of corporate social responsibility (CSR). Based on this framework, we hypothesize that a firm's level of CSR will depend on its size, level of diversification, research and development, advertising, government sales, consumer income, labor market conditions, and stage in the industry life cycle. From these hypotheses, we conclude that there is an "ideal" level of CSR, which managers can determine via cost-benefit analysis, and that there is a neutral relationship between CSR and financial performance.
Environmental management has the potential to play a pivotal role in the financial performance of the firm. Many individuals suggest that profitability is hurt by the higher production costs of environmental management initiatives, while others cite anecdotal evidence of increased profitability. A theoretical model is proposed that links strong environmental management to improved perceived future financial performance, as measured by stock market performance. The linkage to firm performance is tested empirically using financial event methodology and archival data of firm-level environmental and financial performance. Significant positive returns were measured for strong environmental management as indicated by environmental performance awards, and significant negative returns were measured for weak environmental management as indicated by environmental crises. The implicit financial market valuation of these events also was estimated. Cross-sectional analysis of the environmental award events revealed differences for first-time awards and between industries. First-time award announcements were associated with greater increases in market valuation, although smaller increases were observed for firms in environmentally dirty industries, possibly indicative of market skepticism. This linkage between environmental management and financial performance can be used by both researchers and practitioners as one measure of the benefits experienced by industry leaders, and as one criterion against which to measure investment alternatives.
Utilizing data on a sample of large firms, we estimate a model of corporate reputation. We find reputation, derived from the assessments of managers and market analysts, to be determined by a firm's social performance, financial performance, market risk, the extent of long-term institutional ownership, and the nature of its business activities. Furthermore, the reputational effect of social performance is found to vary both across sectors, and within sectors across the various types of social performance. Specifically, our results demonstrate the need to achieve a 'fit' among the types of corporate social performance undertaken and the firm's stakeholder environment. For example, a strong record of environmental performance may enhance or damage reputation depending on whether the firm's activities 'fit' with environmental concerns in the eyes of stakeholders. Copyright Blackwell Publishing Ltd 2006.
Small to medium-sized enterprises (SMEs) are moving their manufacturing operations from low-cost countries back to high-cost countries, reversing earlier offshoring decisions. These reshoring decisions cannot be completely explained by changing location-related costs. To better understand why SMEs are reshoring, we evaluate nine product-line decisions – six to reshore and three to remain offshore – and codify four empirical observations. We then integrate these observations with relevant literature to develop and analyze a system dynamics model of SMEs' offshoring and reshoring decisions. Synthesizing the above, we articulate propositions regarding SMEs’ reshoring decisions. We conclude by discussing these decisions through the lens of the heuristic decision-making literature, providing managerial and policy implications.
This book examines and evaluates various private initiatives to enforce fair labor standards within global supply chains. Using unique data (internal audit reports, and access to more than 120 supply chain factories and 700 interviews in 14 countries) from several major global brands, including NIKE, HP, and the International Labor Organization's Factory Improvement Programme in Vietnam, this book examines both the promise and the limitations of different approaches to actually improve working conditions, wages, and working hours for the millions of workers employed in today's global supply chains. Through a careful, empirically grounded analysis of these programs, this book illustrates the mix of private and public regulation needed to address these complex issues in a global economy.
We explore the contextual factors surrounding reputation damage and their potential implications for reputation repair. We propose a model that examines how (1) the multidimensional property of reputation, (2) organizational age, (3) the diversity of market segments served by the organization, and (4) third parties influence a firm's perceived capability to cope with a reputation-damaging event and the external visibility of the event, which, in turn, determine the difficulty of the firm's reputation-repairing activities.
This article examines the effect of product development restructuring (PDR) on shareholder value. The results are based on a sample of 165 announcements made during 2002–2011. PDR announcements are associated with an economically and statistically significant positive stock market reaction. Over a two-day period (the day of the announcement and the day preceding the announcement), the mean (median) market reaction is 1.63% (0.87%). The market reaction is generally positive regardless of the PDR purpose or action. Although the market reaction is more positive for higher R&D intensity firms, it is not directly affected by the firm's prior financial performance or whether the firm's primary PDR objective is to increase revenues or cut costs. However, the interaction between the firm's prior financial performance and its primary PDR objective is significant. For firms that are financial outperformers, the market reaction is more positive if the firm's primary PDR objective is to increase revenues. For financial underperformers, the market reaction is more positive if the firm's primary PDR objective is to cut costs.
This paper examines properties of daily stock returns and how the particular characteristics of these data affect event study methodologies. Daily data generally present few difficulties for event studies. Standard procedures are typically well-specified even when special daily data characteristics are ignored. However, recognition of autocorrelation in daily excess returns and changes in their variance conditional on an event can sometimes be advantageous. In addition, tests ignoring cross-sectional dependence can be well-specified and have higher power than tests which account for potential dependence.
A situational crisis communication theory (SCCT), which articulates the variables, assumptions, and relationships that should be considered in selecting crisis response strategies to protect an organization’s reputation, is advanced. Although various studies taking a situational approach have touched on certain of the theory’s variables and relationships, this study represents the first attempt to articulate and begin to test a situational theory of crisis communication. SCCT is premised on matching the crisis response to the level of crisis responsibility attributed to a crisis. The study explores one of the basic assumptions of SCCT by assessing whether the predicted correlational relationship between crisis responsibility and organizational reputation occurs across a range of crisis types. Results support the theory’s predictions and suggest ways to refine the theory.
Purpose – Theory has made many assumptions about the consequences of a “good” corporate reputation. The aim of this paper is to provide evidence of the effect of a positive corporate reputation on the firm's future financial performance by means of a more differentiated concept of reputation than the one commonly used in literature. Design/methodology/approach – In contrast to prior research, reputation is conceptualised by means of a two-dimensional approach. Therefore, two distinct reputational components are hypothesised as affecting financial performance differently. A large-scale representative survey of 30 of the largest German firms is conducted to gain reputational evaluations of these firms. The overall assessment of reputation is differentiated into a part that is explained by past financial performance and an idiosyncratic part to control for the effect of past performance on today's reputation. Finally, the idiosyncratic effect of reputation on future performance is assessed with an econometric model. Findings – Both the cognitive and the affective reputational dimension significantly influence future financial performance after controlling for past performance. Furthermore, the results suggest that the decompositional model outperforms a non-decompositional approach in terms of goodness of fit. Research limitations/implications – There is only a limited possibility to generalise the results to all firms. Practical implications – The results imply a need for differentiated reputation management, since the cognitive and affective components of corporate reputation drive financial performance differently. Originality/value – The two-dimensional reputational approach broadens prior research with a focus on the differences in performance – the effects of both the reputational components.
Good corporate reputations are critical because of their potential for value creation, but also because their intangible character makes replication by competing firms considerably more difficult. Existing empirical research confirms that there is a positive relationship between reputation and financial performance. This paper complements these findings by showing that firms with relatively good reputations are better able to sustain superior profit outcomes over time. In particular, we undertake an analysis of the relationship between corporate reputation and the dynamics of financial performance using two complementary dynamic models. We also decompose overall reputation into a component that is predicted by previous financial performance, and that which is ‘left over’, and find that each (orthogonal) element supports the persistence of above-average profits over time. Copyright © 2002 John Wiley & Sons, Ltd.
This paper investigates the long-term stock price effects and equity risk effects of supply chain disruptions based on a sample of 827 disruption announcements made during 1989–2000. Stock price effects are examined starting one year before through two years after the disruption announcement date. Over this time period the average abnormal stock returns of firms that experienced disruptions is nearly –40%. Much of this underperformance is observed in the year before the announcement, the day of the announcement, and the year after the announcement. Furthermore, the evidence indicates that firms do not quickly recover from the negative effects of disruptions. The equity risk of the firm also increases significantly around the announcement date. The equity risk in the year after the announcement is 13.50% higher when compared to the equity risk in the year before the announcement.
Information disclosure is a common regulatory tool designed to influence business behavior. A belief is that transparency
can provoke learning and also positive institutional change by empowering private watchdogs to monitor and pressure business
leaders to alter harmful behavior. Beginning in the late 1990s, a private movement emerged that pressured corporations to
disclose the identify of their global supplier factories. These activists believed that factory disclosure would lead to greater
accountability by corporations for the working conditions under which their products are made, which in time would improve
labor practices. In 1995, Nike and Levi-Strauss (Levis) surprised the business community by publishing their supplier lists.
This paper describes case studies of Nike and Levis, tracking the evolution from resistance to supply chain transparency through
to the decision to be industry leaders in factory disclosure. The paper evaluates the contribution of factory disclosure and
proposes that other companies should be urged to move toward supply chain transparency.
Keywordslabor practices–information disclosure–transparency–corporate social responsibility–supply chains–Nike–Levi-Strauss
This paper analyzes the shareholder value effects of environmental performance by measuring the stock market reaction associated with announcements of environmental performance. We examine the market reaction to two categories of environmental performance. The first category includes 417 announcements of Corporate Environmental Initiatives (CEIs) that provide information about self-reported corporate efforts to avoid, mitigate, or offset the environmental impacts of the firm's products, services, or processes. The second category includes 363 announcements of Environmental Awards and Certifications (EACs) that provide information about recognition granted by third-parties specifically for environmental performance. Although the market does not react significantly to the aggregated CEI and EAC announcements, we find statistically significant market reactions for certain CEI and EAC subcategories. Specifically, announcements of philanthropic gifts for environmental causes are associated with significant positive market reaction, voluntary emission reductions are associated with significant negative market reaction, and ISO 14001 certifications are associated with significant positive market reaction. The difference between the market reactions to the CEI and EAC categories is statistically insignificant. Overall, the market is selective in reacting to announcements of environmental performance with certain types of announcements even valued negatively.
This paper estimates the shareholder wealth affects of supply chain glitches that resulted in production or shipment delays. The results are based on a sample of 519 glitches announcements made during 1989–2000. Shareholder wealth affects are estimated by computing the abnormal stock returns (actual returns adjusted for industry and market-wide influences) around the date when information about glitches is publicly announced. Supply chain glitch announcements are associated with an abnormal decrease in shareholder value of 10.28%. Regression analysis is used to identify factors that influence the direction and magnitude of the change in the stock market’s reaction to glitches. We find that larger firms experience a less negative market reaction, and firms with higher growth prospects experience a more negative reaction. There is no difference between the stock market’s reaction to pre-1995 and post-1995 glitches, suggesting that the market has always viewed glitches unfavorably. Capital structure (debt–equity ratio) has little impact on the stock market’s reaction to glitches. We also provide descriptive results on how sources of responsibility and reasons for glitches affect shareholder wealth.
We provide evidence on the speed and accuracy of price discovery by studying stock returns and trading volume surrounding the crash of the space shuttle Challenger. While the event was widely observed, it took several months for an esteemed panel to determine which of the mechanical components failed during the launch. By contrast, in the period immediately following the crash, securities trading in the four main shuttle contractors seemingly singled out the firm that manufactured the faulty component. We show that price discovery occurred without large trading profits and that much of the price discovery occurred during a trading halt of the firm responsible for the faulty component. Finally, although we document what are arguably quick and accurate movements of the market, we are unable to detect the actual manner in which particular informed traders induced price discovery.
This paper examines properties of daily stock returns and how the particular characteristics of these data affect event study methodologies. Daily data generally present few difficulties for event studies. Standard procedures are typically well-specified even when special daily data characteristics are ignored. However, recognition of autocorrelation in daily excess returns and changes in their variance conditional on an event can sometimes be advantageous. In addition, tests ignoring cross-sectional dependence can be well-specified and have higher power than tests which account for potential dependence.
This paper empirically documents the association between supply chain glitches and operating performance. The results are based on a sample of 885 glitches announced by publicly traded firms. Changes in various operating performance metrics for the sample firms are compared against a sample of control firms of similar size and from similar industries. In the year leading up to the announcement, the control-adjusted mean percent changes in operating income, return on sales, and return on assets for the sample firms are -107%, -114%, and -92%, respectively. During this same period, the control-adjusted changes in the level of return on sales and return on assets are -13.78% and -2.32%, respectively. Relative to controls, firms that experience glitches report on average 6.92% lower sales growth, 10.66% higher growth in cost, and 13.88% higher growth in inventories. More importantly, firms do not quickly recover from the negative economic consequences of glitches. During the two-year time period after the glitch announcement, operating income, sales, total costs, and inventories do not improve. We also find that it does not matter who caused the glitch, what the reason was for the glitch, or what industry a firm belongs to--glitches are associated with negative operating performance across the board.
This paper examines properties of daily stock returns and how the particular characteristics of these data can affect event study methodologies. We find no evidence that either nonnormality in the time-series of daily excess returns or bias in OLS estimates of Market Model parameters affect the specification or power of tests for abnormal performance. However, under plausible conditions, both autocorrelation in excess returns and changes in the variance of daily returns conditional on an event can affect the tests; simple procedures to deal with these issues are sometimes quite useful. We also show that taking into account dependence in the cross-section of the daily excess returns can be harmful, resulting in tests with relatively low power and which are no better specified than those which assume independence.
Researchers debate whether environmental investments reduce firm value or can actually improve financial performance. We provide some first evidence on shareholder wealth effects of voluntary corporate environmental initiatives. Companies announcing membership in Climate Leaders and Ceres - two voluntary environmental programs related to climate change - experience significantly negative abnormal stock returns. The price decline is smaller in carbon-intensive industries, where regulatory actions are more likely, and for high book-to-market firms, suggesting that "green" expenditures crowd out growth-related investments. We also document insignificant announcement returns for portfolios of industry rivals. Overall, the environmental investments appear to conflict with shareholder value-maximization. This has far reaching implications since the U.S. government relies on voluntary initiatives to reduce the emissions of greenhouse gases.
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