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Shareholder Value Effects of the Volkswagen Emissions Scandal on the Automotive Ecosystem
Abstract
This paper provides empirical evidence on the effect of the September 2015 Volkswagen diesel emissions scandal on the stock prices of publicly traded firms in the global automotive ecosystem. We focus on both the supply chain partners of VW – tier‐1 suppliers; tier‐2 suppliers; and business customers – and three groups of firms that are not VW supply chain partners – other motor vehicle manufacturers; parts manufacturers not identified as VW suppliers; and wholesalers, retailers, and rental agencies not identified as VW customers. We find that tier‐1 suppliers of direct material to VW suffered a mean stock price reaction of ─2.69% in the week following the scandal, but this effect varied by region. European suppliers were the most impacted with a mean stock price reaction of ‒5.52%. Suppliers with larger revenue dependence on VW experienced greater negative stock price reactions, as did suppliers of components for engines and/or emissions systems. Non‐VW parts manufacturers experienced a positive effect. We find a mean stock price reaction of ─5.28% to VW’s European customers, but no significant effects for non‐VW customers. European motor vehicle manufacturers experienced a mean stock price reaction of ‒7.60%. Our results suggest that firms should not just focus on selecting and monitoring responsible suppliers but also apply some of the same principles to developing responsible customers. Our work also has implications for industry groups, regulators, and legal systems, entities that have the resources and capabilities to effectively monitor large firms to reduce illegal or irresponsible behavior such as the VW scandal.
... When a brand recalls its defective products, a substitute brand's manager (in the same product category) may wonder whether prospective buyers will perceive the substitute brand to have superior or inferior quality, relative to the recalling brand (Borah and Tellis, 2016;Jacobs and Singhal, 2020). That is, the recall triggers perception spillover in the substitute brand's manager (see Figure 1). ...
... First, if the substitute brand's manager believes that the recall presents an opportunity to preempt the recalling brand's loss of sales, they adopt a sales-preemption strategy, which is observed in an increase in the substitute brand's ad spending (Roehm and Tybout, 2006;Zhou et al., 2019). Second, the manager may fear that buyers may draw unfavorable comparisons between the recalling brand and the substitute, damaging buyers' perceptions of the substitute brand (Borah and Tellis, 2016;Jacobs and Singhal, 2020). 4 Such a threat interpretation may cause the managers to pursue a harm-avoidance strategy, which results in a decrease in their brand's ad spending. ...
... Operations management academics have researched how one firm's negative events or risks impact its related firms' (specifically, suppliers' and organizational customers') outcomes (e.g., Agca et al., 2021;Houston et al., 2016;Jacobs and Singhal, 2020;Wang et al., 2020). We add to this evidence by documenting not only the related firms' outcome (specifically, sales volume) but also their strategic response to a substitute's product quality failure. ...
A brand manager can interpret a rival's product recall as an opportunity to preempt sales and/or signal superior quality by raising their brand's ad spending. Conversely, they may interpret the recall as a threat that may harm the substitute brand's image and/or lead buyers to draw unfavorable comparisons between the substitute brand and the recalling brand. Such interpretation nudges the manager to suppress their brand's ad spending. The authors test the interpretations empirically in the context of 62 substitute car models' responses to a model's recall. They assess the response over 31 weeks and 308 geographical regions, leading to 591,976 model-week-region observations. Regression discontinuity in time (RDiT) analysis reports that, on average, a substitute brand responds by lowering its ad spending by 50%, suggesting that threat interpretation dominates opportunity interpretation. A decomposition of spending by type suggests that substitute brands increase their spending on price advertising by 25%, decrease spending on quality advertising by 71%, while making no adjustment to brand advertising. This nuanced analysis suggests that substitutes attempt sales preemption, avoid quality signaling, and are not worried about brand spillover. Supplementary, a follow-up analysis reports that this advertising strategy strengthens the positive spillover effect of a brand's recall on its substitute brands' sales volume. The key findings hold for another major automobile recall event in the same market. The findings contribute to the literature on the management of quality perception while informing substitute brands' managers on their response to a brand's quality failure and whether the response helps or hurts the substitutes' sales. Further, the findings build an empirical foundation for future analytic investigation on strategic interactions among brands when a quality defect occurs.
... Although the COVID-19 pandemic is a serious global public health concern, the impact of the pandemic on the value of blockchain is unclear, especially on firm financial performance. Market reactions-the changes in stock price-can be used to measure financial performance (or shareholder value) as well as potential competitiveness of firms and their decisions-both strategic and operational [11]. Klöckner et al. [12] found that blockchain announcements are associated with a significant impact on the market value of international firms, and that there are indications of long-term positive effects on financial performance. ...
... 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. Hendricks et al. [30] study the effect of the 2011 GEJE (Great East Japan Earthquake) on organizational financial performance. ...
... It is used to estimate abnormal returns (AR), or cumulative abnormal returns (CAR) was related to a specific event after controlling for market wide factors that affect the stock prices. AR and CAR, as the stock price reactions, can be used to reflect the shareholder value of an event [11]. In next section, we describe the event study method used to estimate the firm's the stock price reaction (CAR) for the COVID-19 pandemic, present the results of the stock price reaction of blockchain-related firms in the different stages of COVID-19 pandemic, then investigate the different stock price reactions among blockchain-related firms and two types matched firms, including non-ICTs related firms and other-ICTs related firms. ...
... Firms might also benefit from better terms and conditions offered by former suppliers or customers of the affected firm seeking new contracts. Competitive effects resulting from supply chain disruptions, and their subsequent impact on stock prices, are studied by Lang and Stulz (1992), Jacobs and Singhal (2020), and Hendricks et al. (2020). Lang and Stulz (1992) argue the ability of competitors to capitalize on the affected firm's negative event depends partially on the degree of competition. ...
... There is very limited empirical evidence on how the negative effect of supply chain events propagates to tiertwo suppliers. An exception is Jacobs and Singhal (2020) who study the effect of the 2015 VW scandal on tier-two suppliers of VW. They do not find any evidence of significant stock market reaction for a sample of about 300 tiertwo suppliers of VW. ...
... Hendricks et al. (2020) report a mean market reaction of À3.06% for customers who experienced supply chain disruptions because their suppliers were directly affected by the Japanese tsunami. Jacobs and Singhal (2020) find that the VW scandal did not have any significant impact on VW customers. In their study of firms that file for bankruptcy, Hertzel et al. (2008) report that customers of those firms experienced a mean market reaction of À0.19%. ...
Government trade actions are an increasing source of supply chain risk. This research provides empirical evidence of the stock market reaction to trade actions against a targeted firm on other firms in the targeted firm's supply chain eco‐system. We test our hypothesized stock price effects using the case of the 2018 US government ban on US firms from supplying to ZTE, a Chinese telecommunications manufacturer. We estimate the ban's effects on ZTE's tier‐one US and non‐US suppliers, as well as the upstream and downstream supply chain propagation effects by considering ZTE's tier‐two suppliers and business customers. We also estimate impacts to ZTE's competitors. We find that tier‐one US suppliers experienced a stock price effect of −3.33% following the ban, and the reaction was more negative for those suppliers more dependent on ZTE for revenues. We find a stock price effect on tier‐two suppliers of −0.40%, but an insignificant effect on non‐US tier‐one suppliers. Business customers experienced a stock price effect of 0.66%, and the competitors' stock price effect was 1.34%. The reversal of the ban 4 weeks later resulted in a stock price effect of 1.56% for tier‐one US suppliers, 1.72% for tier‐one non‐US suppliers, and 1.35% for competitors. The 2018 ZTE trade ban by the US government resulted in significant market value losses (median −3.33%) for ZTE's US suppliers, but not for its non‐US suppliers. The reversal of the ban 4 weeks later resulted in significant market value gains (median 1.56%) for ZTE's US suppliers, but the gains were not sufficient to offset the losses incurred by the ban. Policymakers and regulators need to be sensitive to the potential market value gains and losses due to government trade actions for both domestic and non‐domestic firms, and supply chain managers and investors need to be aware of the magnitude of the impacts.
... Specifically examining Dieselgate and the effect of the US EPA's filing of a notice of violation against VW on 18 September 2015, Fracarolli consider 33 USbased automotive firms from different levels of the supply chain (suppliers and manufacturers) and conclude that both suppliers and manufacturers that rely on diesel fuel technology experienced heavy negative stock returns as a result of this event. Also relying on the EPA disclosure, Jacobs and Singhal (2020) explored the impact of Dieselgate on a variety of stakeholders such as other manufacturers, suppliers (tier-1 and tier-2), and customers (wholesalers, retailers, and rental agencies). For an international sample of firms, they report significant mean stock losses for both tier-1 suppliers and tier-2 suppliers of engine components and emissions systems, with European suppliers and suppliers with a large dependence on VW suffering the most. ...
... First, I acknowledge that only 16 out of the 38 studies explicitly address confounding events. This is done by dropping observations that are potentially influenced by a confounding event (Basse Mama & Bassen, 2013;Jacobs & Singhal, 2020;Konar & Cohen, 1997;Wood et al., 2018;Zou et al., 2015), leaving respective firms or events out of the examination , calculating average CARs for multiple firms for different points in time (Badrinath & Bolster, 1996), conducting robustness checks (Jacobs & Singhal, 2020;Lopatta & Kaspereit, 2014), and keeping the event window fairly short . ...
... First, I acknowledge that only 16 out of the 38 studies explicitly address confounding events. This is done by dropping observations that are potentially influenced by a confounding event (Basse Mama & Bassen, 2013;Jacobs & Singhal, 2020;Konar & Cohen, 1997;Wood et al., 2018;Zou et al., 2015), leaving respective firms or events out of the examination , calculating average CARs for multiple firms for different points in time (Badrinath & Bolster, 1996), conducting robustness checks (Jacobs & Singhal, 2020;Lopatta & Kaspereit, 2014), and keeping the event window fairly short . ...
This doctoral thesis deals with the topic of organizational misconduct and covers the three salient research streams in this area by addressing its performance outcomes, antecedents, and preventive measures. Specifically, it is concerned with the question of how different forms of misconduct are reflected in the stock performance of related organizations, thereby, covering the three pillars of corporate sustainability environmental, social, and governance (ESG). Furthermore, it aims to conceptualize how individual cognitive biases may lead to misconduct, therefore, potentially representing an antecedent and how existing management control systems can be enhanced to effectively address specific forms of misconduct, respectively.
To these ends, I first review the research stream of stock price reactions to environmental pollution events in terms of the underlying research samples, methodological specifications, and theoretical underpinnings. Based on the findings of the systematic literature review (SLR), I perform three stock-based event studies of the Volkswagen diesel emissions scandal (Dieselgate), workplace sexual harassment (#MeToo accusations), and the 2003 blackout in the US to cove the three ESG dimensions, respectively. In line with the SLR, my event studies reveal substantial stock losses to firms involved in misconduct that are eventually even accompanied by a spillover effect to uninvolved bystanders.
Then, I review the extant literature conceptually to develop a framework outlining how moral licensing as an individual cognitive bias might lead to a self-attribution of corporate sustainability, a consecutive accumulation of moral credit, and a later exchange of this credit by engaging in misconduct afterward.
Finally, I assess existing workplace sexual harassment management controls, such as awareness training and grievance procedures critically in another conceptual analysis. Based on the shortcomings stemming from management controls’ focus on compliance and negligence of moral duties, I introduce five specific nudges firms should consider to enhance their existing management controls and eventually prevent occurrences of workplace sexual harassment.
Based on the six distinct articles within this doctoral thesis, I outline its limitations and point at directions for future research. These mainly address providing further evidence on the long-term performance effects of organizational misconduct, enriching our knowledge on further cognitive biases eventually leading to misconduct, and conceptualizing nudging beyond the use-case of workplace sexual harassment.
... Focusing only on stock returns could potentially result in severely underestimating losses in market value, since this would neglect losses faced by debt holders. Most closely related to our work are the studies by Griffin and Lont (2018), Bachmann et al. (2021) and Jacobs and Singhal (2020), which we present in more detail later together with further research on the Volkswagen emissions scandal. ...
... EPA notice may have unblocked informational cascade, i.e. information on VW emissions were already known to interested parties, however, no significant market response occured until EPA notice. Jacobs and Singhal (2020) Analysis of stocks of automakers as well as of tier-1 suppliers, tier-2 suppliers, and business customers of Volkswagen and analogous firms that are not related to Volkswagen VW-suppliers experience negative spillover effects (especially European suppliers), while non-VW suppliers experience significantly positive spillover effects (competitive effect). Significantly negative spillover effects to European VWcustomers (no significant effects to non-European VWcustomers and non-VW customers). ...
... A second strand of the literature closely related to our work focuses on market value effects from the scandal on Volkswagen itself and spillover effects to other firms. With respect to economic market value effects on Volkswagen itself, articles observe a loss of vehicle sales for Volkswagen (Mansouri 2016;Bachmann et al. 2021), a deterioration in positive public (twitter) sentiment (Bachmann et al. 2021), a decline in stock returns (Mansouri 2016;Bachmann et al. 2021;Jacobs and Singhal 2020) as well as an increasing co-integration of credit default swaps and stocks (Griffin and Lont 2018). In regard to spillover effects to competitors, significantly more negative effects are found for German car manufacturers as measured by vehicle sales in the U.S., stock returns, and public sentiment in Bachmann et al. (2021). ...
This study examines spillover effects following Volkswagen’s admission of emissions cheating. We first estimate initial operational losses of 8.45% of Volkswagen’s equity market capitalization on the date before the announcement, reputational losses up to five times these losses, and significant negative shocks to its stocks and bonds. Analyzing spillover effects from this shock beyond the usually only measured losses in equity value, we find significant negative net spillover effects to European competitors and suppliers in both stock and bond markets. Studying the economic effects in more detail, we show that Volkswagen’s total losses of 27.4 billion euros in terms of changes in equity market values over the first five event days are almost entirely composed of abnormal losses. Furthermore, competitors (suppliers) overall suffered 18.3 (12.6) billion euros of abnormal losses during this time, with 60% (69%) of the firms exhibiting negative changes, especially European competitors and suppliers connected to Volkswagen. These figures are further increased by negative bond market value changes. Overall, our results strongly emphasize that neglecting debt holders losses can lead to an underestimation of such events.
... Thus, our finding is consistent with supply chain research on demand-driven uncertainty that can drive buyer strategies to reduce risk through supplier diversification or seeking alternative supply sources (Chaturvedi & Martinez-de-Albeniz, 2016;Ellis et al., 2010;Sting & Huchzermeier, 2014). Moreover, it highlights the proposition that "firms should not just focus on selecting and monitoring responsible suppliers but also apply some of the same principles to developing responsible customers" (Jacobs & Singhal, 2020, p. 2230. ...
... The uncertainty in inventory means that too much variation enters into production processes, inhibiting a supplier's ability to consistently perform on the environmental dimension. This information and transparency can have different implications for supply chain partners' CSR and effects at different positions (tiers) in supply chains (Jacobs & Singhal, 2020;Wu et al., 2020). These results confirm that the value of EP is quickly diminished when facing higher supply-side uncertainty. ...
... Furthermore, our findings are similar to the research on suppliers' efforts to improve plant working conditions for workers, strengthening their trustworthiness in the buyers' eyes (e.g., Liu et al., 2019). Specifically, our study provides evidence that EP and PP can promote an enhanced supplierbuyer relationship, offering significant insights into the current understanding of CSR improvement in multitier supply chains (e.g., Gong et al., 2018;Jacobs & Singhal, 2020;Wilhelm et al., 2016). Meanwhile, the findings highlight the critical contingencies of both demand-driven and supplyside uncertainties, which can alter buyer-supplier relationships. ...
Most studies of corporate social responsibility (CSR) performance in a supply chain context have been conducted from the buyer's perspective. Few have paid attention to how suppliers leverage this kind of performance to expand exchange relationships with major customers. From a resource dependence and social exchange perspective, this article specifically examines whether two supplier CSR performance dimensions—environmental and product performance—can serve as a mechanism to expand a supplier's relationships with a smaller number of major buyers, where its increasing exchange dependence often measures this factor. Moreover, these dependent relationships may further develop and change under different conditions of uncertainty. Using large‐scale longitudinal data to test the proposed model, we find empirical evidence that a supplier's environmental and product performance relate positively to greater customer dependence and improved financial performance across diverse sets of industries. However, the findings also reveal that both demand‐driven and supply‐side uncertainty can weaken the effect. Specifically, the positive effect of environmental performance tends to weaken in the face of supply‐side uncertainty, whereas the positive effect of product performance tends to weaken amid demand‐driven uncertainty. Accordingly, we note important nuances and contingencies for suppliers to consider when considering how investments in these CSR performance dimensions affect exchange dependence.
... For instance, Kim et al. (2019) investigated firms' stock market reaction to their suppliers' sustainability risks. Jacobs and Singhal (2020) studied the stock market reaction to the emissions scandal for Volkswagen's suppliers. Lam et al. (2019b) showed a positive stock market reaction to the supply chain finance initiatives. ...
... Following the literature (Elking et al., 2017;Jacobs and Singhal, 2020), we measured buyer and supplier dependence in Equations (4) and (5), respectively, ...
Purpose - Sustainable supply chain management (SSCM), driven by the downstream buyers’ power, transfers sustainability responsibilities to the upstream supplier. In contrast to the heavily focused buyers’ perspective in the literature, we investigate how this buyer-driven SSCM influences suppliers’ performance, using the measure of stock market reaction.
Design/methodology/approach – Grounded by the resource dependence theory (RDT), we empirically analyze the power effect on suppliers. Event study methodology and regression analysis are used, based on a sample of 1977 paired supplier observations from 1990 to 2016.
Findings – The result suggests that although a negative stock market reaction for suppliers in SSCM exists, the effect is less negative at a high level of buyer and supplier dependence. For the investigation of the ‘consolidated SSCM initiative,’ where buyers acquire exogenous power by collaboratively managing SSCM with their peers, we uncover that the negative impact of this consolidated SSCM initiative can be mitigated by the high interdependence that generates
relational norms in the dyads.
Research limitations/implications – We focus on dyadic relationships. Future research can use our findings to study the SSCM diffusion to lower-tier suppliers.
Practical implications – This paper has good managerial implications for both suppliers and buyers. We propose dependence-based strategies for supplier managers to reduce uncertainty in SSCM. Moreover, buyer managers can use our findings to strengthen suppliers’ commitment.
Originality - The novelty of examining the suppliers’ perspective contributes to exploring the supply chain impact of SSCM. We extend RDT and show that high dependence is not necessarily detrimental to suppliers in this buyer-driven SSCM context. The interesting finding of interdependence in the context of the consolidated SSCM initiative brings new insights that relational norms constrain the leverage of power in the dyads and are beneficial to the powerdisadvantageous
suppliers.
... To calculate the complexity dimensions, we require information on firms' supply bases, together with their interconnections. We collected data from the Bloomberg Supply Chain Database (SPLC), which, scholars argue, provides the most granular data on supplier relationships (Jacobs & Singhal, 2020;Osadchiy, Gaur, & Seshadri, 2016;Sharma et al., 2019). Bloomberg draws upon multiple sources, such as annual reports, SEC filings, earnings calls, press releases, webpages, etc., to collect key buyersupplier relationship information (Jacobs & Singhal, 2020;Sharma et al., 2020). ...
... We collected data from the Bloomberg Supply Chain Database (SPLC), which, scholars argue, provides the most granular data on supplier relationships (Jacobs & Singhal, 2020;Osadchiy, Gaur, & Seshadri, 2016;Sharma et al., 2019). Bloomberg draws upon multiple sources, such as annual reports, SEC filings, earnings calls, press releases, webpages, etc., to collect key buyersupplier relationship information (Jacobs & Singhal, 2020;Sharma et al., 2020). Jacobs and Singhal (2020) compared the relationships available in Bloomberg SPLC with the information offered by the business press for Volkswagen and found that over 86% of the unique buyers and suppliers identified in the business press are also present in the Bloomberg database. ...
The literature on marketing, operations management, and strategy has investigated the impacts of a firm's supplier network structure and complexity on its financial, environmental, and innovation performance. However, our understanding of how the global supply chain complexities of a multinational enterprise (MNE) affect its international business performance (IBP) is limited. We draw on both the business network theory and information search literature to propose that the various complexity dimensions (e.g., horizontal, vertical, and spatial) of an MNE's global supply chain have different influences on its subsequent IBP. We argue - and empirically validate - that collaboration, a network orchestration mechanism, enables an MNE to leverage the benefits of complex relationships. Using a dataset of 185 firms taken from multiple industries over 6 years, we show how such complexities have differential effects. In multiple post hoc analyses, we demonstrate how an MNE's marketing intensity, the interconnectedness among its supply members, and its top management team (TMT)'s international experience all have unique impacts. This study contributes to the existing literature on global supply chain complexity by demonstrating how it can influence MNEs' IBP. Moreover, we contribute to the strategic IBP literature by outlining effective global supply chain improvement strategies.
Supplementary information:
The online version contains supplementary material available at 10.1057/s41267-021-00497-0.
... The findings of Schiermeier (2015) are interesting depending on the statement that clearly states, that this event was a shame and mistake brand management activity. Besides these, Jacobs and Singhal (2020) maintain that shareholder value is in a sharp decreasing trend in the post-crisis period of the event. It is also a clear finding that of Alchner et al. (2021. ...
After the Volkswagen AG Emission Crisis, the automobile industry took special measures in terms of marketing, business management and other managerial sides. This research aims to measure the after-crisis period and whether or not other companies take necessary financial measures toward environmental sustainability. Basic OLS Regression and OLS Regression with dummy variables are utilized on the market-adjusted financial returns of the companies. There are three important findings of this research. Volkswagen AG suffered from the emission crisis not only on the marketing side but also in terms of financial management. Secondly, Mercedes AG and BMW AG did not take the necessary financial lessons from the Volkswagen Emission Crisis because of the same results. And thirdly sustainability variables have an impact on financial management near reputation and brand management. According to findings and discussions, the behaviour of the investors toward the emission scandals is negative. They are comprehensively impacted by these events. The situation can be more complex if corporal investors are added to this equation. Also, It seems that Mercedes AG and BMW AG did not take the necessary lessons from the emission scandal of Volkswagen AG despite of 3 years between events in terms of corporal financial management and automobile-technical details. More interestingly, sustainability or environmental sustainability is one of the main elements not only for the marketing and branding sides of the business but also for the financial management side of corporal management. The sustainability policies of these brands should include financial management. This situation will help the investors and companies if a new sustainability crisis occurs in the market with exact information.
... In response to mounting public concern about global warming, scholars and practitioners alike have recognized the critical role of firms' carbon management (CM) in corporate stock prices. For example, the average share price of six European client firms fell by 5.28% because of the Volkswagen diesel emission scandal, causing the total market capitalization to drop by US$322 million in 1 week (Jacobs and Singhal 2020). Despite the increasing recognition of the importance of CM, theoretical insights and empirical evidence regarding whether supplier CM levels substantially influence firm IR are lacking. ...
Although existing research emphasizes the importance of internal carbon management (CM) in influencing firm risk, the impact of external stakeholder CM on firm risk remains unclear. This study employs signaling theory to explore how supplier CM affects firm idiosyncratic risk (IR), alongside the moderating roles of the supply chain information environment and the criticality of firm–supplier relationships. The findings of this study demonstrate that supplier CM can reduce firm IR. The risk reduction effect is strong when the information environment between a firm and its suppliers is rich and when the dependency between the firm and its supplier is strong. Path analysis reveals that supplier CM primarily reduces firm IR by alleviating information asymmetry. Moreover, the risk reduction effect increases for firms with small sizes. This research extends the application of signaling theory to supply chain research and bridges the gap between the CM and firm IR literature within the context of supply chain management.
... Barth et al. (2022) find that when bad news (information) or scandal is released from the customer, its worldwide suppliers' financial performance will be affected because of the spillover effect across the supply chain. Similarly, Jacobs and Singhal (2020) compare the impact of customer's scandal on the financial performance of its suppliers with that of firms outside the supply chain, and find that the adverse effect of buyer firm's scandal is the strongest on suppliers. Besides, Wang et al. (2023) find credit rating actions, such as rating changes, credit watches and outlooks, have significant spillover effects on suppliers' and customers' abnormal stock returns. ...
We investigate the effect of customers’ credit default swap (CDS) referencing on suppliers’ issuance of management forecasts. We argue that customers’ CDS referencing increases the suppliers’ business volatility, making forecasting more difficult. At the same time, the information from customers’ CDS market reduces investors’ demand for the suppliers’ disclosure and induces the suppliers to scale back their own disclosure. By using a difference-in-differences design, we find consistent evidence that firms tend to reduce their frequency of forecast issuance after the initiation of sales to CDS-referenced customers, compared to firms without CDS-referenced customers. This relationship is stronger when the supplier’s business relies more on CDS-referenced customers (thus strengthening the effect of customer CDS referencing on suppliers’ forecasting difficulty). In comparison, the relationship is weaker when customers have more analyst following (thus resulting in less incremental information produced by customer CDS referencing). Further analysis shows that the information channel seems to be the main mechanism for our findings. Finally, we find the negative relationship between the supplier’s management forecast issuance and its exposure to CDS-referenced customer firms is driven by good news forecasts, possibly due to the higher litigation risk associated with disclosing good news and withholding bad news. Our findings add to the literature examining the spillover effects of CDSs on entities outside those directly referenced by CDSs.
... We mitigate the potential bias resulting from impression offsetting by excluding announcements that involve potentially confounding events affecting investor sentiment. This approach is common in studies using the event study method (e.g., Lo et al., 2018), which is widely used in the OM literature to examine the causal effects of various events on markets (e.g., Jacobs and Singhal, 2020); in our case, we use the methodology to explore the market's reaction to DEI announcements. ...
Despite an increasing emphasis on diversity, equity, and inclusion (DEI), there is a noticeable gap in empirical research concerning its implications, particularly within the manufacturing sector. In response, we scrutinize the impact of DEI commitment on publicly traded manufacturing corporations through the lens of signaling theory. We employ an event study methodology and use structural topic modeling to analyze 233 DEI-commitment announcements issued by 161 firms over a 10-year period between 2013 and 2022. Our findings suggest that DEI-commitment announcements can yield positive abnormal stock returns during the announcement period (from day −1 to 0 and from day −1 to 5). The impact is heightened when the announcement places a stronger emphasis on DEI than non-DEI topics and when it focuses on specific DEI-related subjects, which are referred to here as signal strength and signal specificity. We also discuss the managerial implications of our findings.
... The motor, functioning as the driving component and power core of electric vehicles, significantly influences their overall performance and safety. Consequently, there is an urgent need to employ appropriate methods for timely and precise fault diagnosis [1]. ...
This study addresses the issue of diagnosing faults in electric vehicle motors and presents a method utilizing Improved Wavelet Packet Decomposition (IWPD) combined with particle swarm optimization (PSO). Initially, the analysis focuses on common demagnetization faults, inter turn short circuit faults, and eccentricity faults of permanent magnet synchronous motors. The proposed approach involves the application of IWPD for extracting signal feature vectors, incorporating the energy spectrum scale, and extracting the feature vectors of the signal using the energy spectrum scale. Subsequently, a binary particle swarm optimization algorithm is employed to formulate strategies for updating particle velocity and position. Further optimization of the binary particle swarm algorithm using chaos theory and the simulated annealing algorithm results in the development of a motor fault diagnosis model based on the enhanced particle swarm optimization algorithm. The results demonstrate that the chaotic simulated annealing algorithm achieves the highest accuracy and recall rates, at 0.96 and 0.92, respectively. The model exhibits the highest fault accuracy rates on both the test and training sets, exceeding 98.2%, with a minimal loss function of 0.0035. Following extraction of fault signal feature vectors, the optimal fitness reaches 97.4%. In summary, the model constructed in this study demonstrates effective application in detecting faults in electric vehicle motors, holding significant implications for the advancement of the electric vehicle industry.
... First, scholars have explored the impact of ESG on corporate financial performance, yielding diverse conclusions. The majority of existing studies posit ESG as a crucial driver for enhancing corporate financial performance (Flammer, 2015;Jacobs & Singhal, 2020). Contrarily, some researchers argue that adherence to ESG principles may conflict with shareholder interests, potentially giving rise to new principal-agent challenges (Chen et al., 2018). ...
Understanding the organizational consequences of corporate ESG and its underlying mechanisms is essential for corporate management to develop sustainable strategies, and it is a topic of growing interest in academia. This study, utilizing a sample of Chinese A‐share listed firms from 2010 to 2019, examines the impact of corporate ESG profiles on customer structure. We demonstrate that superior ESG profiles (primarily the social and governance aspects) contribute to reducing customer concentration. This effect is achieved by enhancing firm reputation and employee efficiency, thereby increasing market competitiveness and market share. This effect is more pronounced in firms that invest heavily in advertising and have employees committed to long‐term goals. Furthermore, we discover that ESG‐driven changes in customer concentration led to additional organizational outcomes, including enhanced bargaining power over customers, improved financial performance, and reduced operational risk. In conclusion, our evidence suggests that ESG significantly shapes a firm's customer structure and, consequently, its operations.
... For example, Volkswagen partnered with Microsoft in 2020 to work together on long-term sustainability and social initiatives. 3 The formation of this alliance occurred when Volkswagen was in the process of recovering from the 2016 emissions scandal, which had negatively impacted its shareholder value (Jacobs & Singhal, 2020). While Volkswagen brought financial resources to promote and jointly implement sustainability and social initiatives, it benefited from Microsoft's ESG-specific solid knowledge and reputation. ...
Prior research documents that strategic alliances help firms create shareholder value by gaining access to partner's complementary marketing and technology resources. Apart from these resources, we argue that firms can also access reputational assets of their alliance partner, based on the partner's Environmental, Social, and Governance (ESG) performance. However, the alliance literature overlooks the effect of partner's ESG performance on shareholder value creation. In the present study, we build on the knowledge differentials logic to propose that deviations in a firm's ESG-specific knowledge and expertise compared to those of its alliance partner-what we term "ESG distinctiveness"-can affect a firm's shareholder value. Using data on alliance formation announcements by public U.S. firms between 2003 and 2020, we find that firms gain value from forming alliances with high ESG performance partners. The effect of ESG distinctiveness on shareholder value due to alliance formation is stronger for firms with greater prior partnering experience.
... In this study, we choose a general market model (Brown and Warner, 1985;Jacobs and Singhal, 2020) to estimate abnormal stock returns after the SCQE announcement. This model reflects the linear relationship between stock returns and market returns in a given period and its formula is as follows: ...
Purpose
This study aims to explore the impact of supply chain quality event (SCQE) announcements on enterprises’ stock market value.
Design/methodology/approach
This study adopts the event study approach and analyzes the changes in shareholder value of companies listed in China based on data from 118 SCQE announcements. In the event study, the market, market-adjusted and Carhart four-factor models are used to estimate abnormal stock market returns, and a cross-sectional regression model is performed to examine the effects of SCQE announcements on enterprises’ stock market value.
Findings
SCQE announcements have a negative impact on shareholder value. From the perspective of the supply chain network structure, the market reacts more negatively to SCQE announcements issued by the enterprises with higher supply chain concentration. From the perspective of companies’ characteristics, announcements that do not reflect the establishment of supply chain quality cooperation have a more negative effect on stock market value, which indicates that the supply chain network structure and firm-level characteristic can moderate the market reaction.
Practical implications
The findings demonstrate a quantitative evaluation of how SCQE announcements affect the stock market value of listed companies and provide guidance for managers to enhance the value of SCQE announcements.
Originality/value
This study fills the research gap on the impact of SCQE announcements on stock market value by using secondary data and first explores the relationship between SCQE announcements and stock market value from the perspective of supply chain network. Furthermore, this study contributes to the literature on SCQE using an empirical study in China.
... As the idea of sustainable development attracts increasing attention, the CER implementation of one company in the chain may affect the entire supply chain. For example, the 2015 emissions scandal led to huge penalties for Volkswagen, and the company lost one-third of its market value, which had a significant impact on the market value of its supply chain partners [50]. When suppliers or customers use their own negotiating advantages to reduce corporate cash flow, firms will respond in opportunistic ways, such as by reducing their environmental performance. ...
With the development of society and the improvement of environmental consciousness, the performance of corporate environmental responsibility (CER) has elicited increasing attention in recent years. In previous studies, the exploration of the antecedents of CER is far less evident than the exploration of its results, and only few studies have investigated what determines CER engagement from the perspective of supply chain concentration (SCC). Using data from 2413 firms in China from 2013 to 2019, our study uses the fixed effect model and performs multiple robustness tests to examine the impact of SCC on the fulfillment of CER, its transmission mechanism, and the moderating role of technology uncertainty (TU). Empirical results show that SCC has a pivotal negative impact on CER performance, wherein both supplier concentration (SUP) and customer concentration (CUS) are detrimental to CER performance. Further mechanism analysis shows that such negative effect can be explained by the adverse effect of SCC on the operating cash flow (OCF), in which OCF has a partial mediating effect. Moreover, the negative impact of SCC on CER performance is more significant when the uncertainty of firms’ technological environment is stronger. Our study opens the transmission “black box” between SCC and CER performance and incorporates the behaviors of firms, inter-firm relationships, and environmental factors into the same research framework, and provides a theoretical guidance for management practices.
... These findings also contribute to theoretical (Devalkar and Krishnan 2019, Gupta and Wang 2009, Jing et al. 2012, Kouvelis and Zhao 2012, Wu et al. 2019) and empirical (Cai et al. 2014, Wu et al. 2019 operations management research, which shows that trade credit can help manage the supply chain. The research also relates to the literature on how marketing builds firm value (e.g., Edeling et al. 2020, Srinivasan and and the emerging evidence on how operations builds firm value (e.g., Hendricks and Singhal 2003, Jacobs and Singhal 2020, Modi and Mishra 2011. ...
... These findings also contribute to theoretical (Devalkar and Krishnan 2019, Gupta and Wang 2009, Jing et al. 2012, Kouvelis and Zhao 2012, Wu et al. 2019) and empirical (Cai et al. 2014, Wu et al. 2019 operations management research, which shows that trade credit can help manage the supply chain. The research also relates to the literature on how marketing builds firm value (e.g., Edeling et al. 2020, Srinivasan and and the emerging evidence on how operations builds firm value (e.g., Hendricks and Singhal 2003, Jacobs and Singhal 2020, Modi and Mishra 2011. ...
With over half a trillion dollars in trade credit flowing between firms in the U.S., it is critically important for managers to understand how the trade credit that their firm receives and provides affect its value. Trade credit is a strategic investment in supply chain relationships that allows the recipient to make payment later rather than at the time of the sale. A firm provides trade credit to its downstream business customers and also receives trade credit from its upstream suppliers. Although research has shown that provided trade credit builds a firm’s shareholder value, it has not examined what effect, if any, received trade credit has on the firm’s value. As a result, one might assume that received trade credit affects firm value in the same manner as provided trade credit. We argue otherwise and show that received trade credit and provided trade credit have differential effects on firm value. Received trade credit has a negative direct effect and a positive indirect effect (through profit), whereas provided trade credit has a positive direct effect and a negative indirect effect. The difference in direct effects hinges on the disparate nature of dependence in the supply chain. Provided trade credit increases customers’ dependence on the firm, building the firm’s value. In contrast, received trade credit increases the firm’s dependence on its suppliers, destroying the firm’s value. Empirical results using a sample of 2,804 firms from 1986 to 2017 provide robust support for the hypotheses. They show that managers risk over‐estimating the value of a 1 SD increase in received (provided) trade credit by 74.95) million, on average, if they do not consider both the direct and indirect effects it has on their firm’s value.
Purpose
This study aims to examine the performance implications of blockchain implementation in the supply chain and explore how blockchain functions and supply chain processes of blockchain implementation moderate the effect on firm performance.
Design/methodology/approach
Using 220 blockchain implementations announced between January 2015 and December 2022, we use the event study methodology to estimate the effects of blockchain implementation on the firm value. Regression analyses are conducted to examine the moderating effects of blockchain functions and supply chain processes.
Findings
First, there is a positive and statistically significant relationship between blockchain implementation in the supply chain and firm value. Second, we find that abnormal returns from blockchain implementation are higher when used with blockchain’s contract automation function and applied in downstream processes, supporting the moderation effects.
Originality/value
The study provides empirical evidence on the effects of the blockchain implementation on firm performance, taking into account the complexity of blockchain functions and supply chain processes. It enriches the current understanding of how blockchain implementation in the supply chain contributes to firm value.
zet Volkswagen (VW) emisyon skandalı, 18 Eylül 2015 tarihinde ortaya çıkmıştır. Dünya genelinde VW, dizel arabalarda test sırasında emisyon değerlerini azaltabilmek amacı ile dizel motorlarında "sahte yazılım" yerleştirerek çevre kirliliği, kamu sağlığı ve hukuku yok saymıştır. Bu manipülasyonun ilk olarak Amerika Birleşik Devletleri'nde ortaya çıkması ile birlikte VW şirketinin hisse senedi fiyatları 2 hafta içinde %35 oranında düşmüştür. Bu ani değer kayıplarının yanı sıra Almanya'da VW aleyhine büyük maddi ölçekli tazminat davaları açılmıştır. Ayrıca dünya çapında VW dizel araç sahipleri de, haklarının korunması konusunda davalar açmışlardır. VW'nin tüm bu olumsuzluklardan kurtulup yeniden itibarını sağlayıp sağlayamayacağı tartışılırken, 2017 yılında şirket krizi iyi yöneterek tekrar dünyanın büyük otomobil üreticileri arasında yer almayı başarmıştır. Umulmadık bu artış, kimileri için skandalın sona erdiğinin kanıtı sayılmasına rağmen, göstergeler VW'nin bu olaydan henüz tam olarak aklanmadığına ve skandal kaynaklı bazı sorunların varlığına işaret etmektedir. Bu çalışmada, VW emisyon skandalı ile ortaya çıkan kriz süresince yayınlanan belgeler incelenmiş olup VW şirketinin/ yatırımcıların olaydan nasıl etkilendikleri ve bu krizden çıkarılacak sonuçlar değerlendirilmiştir.
Despite increasing investments in Environmental, Social, and Governance (ESG) initiatives and practices, firms often fail to meet public expectations, causing ESG incidents. While firms often choose to remain silent after an incident, we argue that this is not attractive to firms anymore on social media platforms, where consumers and stakeholders can freely share information and concerns. That is, firms tend to use official social media accounts to increase communication frequency and communicate with stakeholders about the incidents (i.e., incident-related posts) after the occurrences. We are also interested in the extent to which firms would adjust their use of social media in terms of non-incident-related posts, as the current prevailing practical advice and studies offer contradicting predictions. Using data from different sources, we construct an event-based firm-day dataset and empirically show that firms significantly increase the number of social media posts after ESG incidents. The impact is more salient for firms in consumer-oriented industries and when the incident is more impactful. Using a semi-supervised, dictionary-based approach, we delve into the content of tweets and demonstrate that firms are inclined to increase both the number of incident-related and the number of non-incident-related tweets after an ESG incident. The follow-up analyses at the incident level indicate that firms that post more after an ESG incident experience a better reaction from the capital market, especially for customer-oriented firms or incidents that receive high attention from the traditional media.
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.
Although risk management is widely regarded as an important topic within supply chain (SC) management, little research studies the contagious effect of risk factors along SC networks. By using stock price crashes as an indicator of risk factors, our study reveals that stock price crash risk can be transmitted from major customers to suppliers with a delay of up to two weeks. We show that the information opacity of suppliers is a factor that potentially contributes to the delayed crash contagion. We also find that the contagion effect becomes more pronounced as the importance of customers increases. Moreover, customer operational incidents have a more pronounced contagion effect on suppliers compared to customer financial incidents. Additionally, we find that suppliers tend to take strategic measures following the stock price crashes of their major customers, including diversifying their customer base, enhancing operational efficiency, and improving product quality. However, among these actions, only the improvement of operational efficiency effectively mitigates the adverse impact of customer stock price crashes on suppliers. Overall, our findings provide new insight into the distribution of risk factors across SC networks, highlighting the critical role of operational improvements in bolstering the resilience of firms to SC risks.
Our research is designed to uncover the influence of institutional pressure from supply chain partners on cross-functional green integration (CFGI) and environmental performance. We applied structural equation modeling (SEM) using data from 206 Chinese manufacturers to test the conceptual model. Our findings demonstrate that firms are influenced by supply chain partners to perform CFGI. However, the effects differ when suppliers and customers exert different types of pressure. Specifically, both customer coercive and mimetic pressure show positive effects on CFGI, whereas suppliers’ exerting such pressure does not take effect or even backfires. Contrary to the effects of coercive and mimetic pressure, supplier normative pressure facilitates CFGI, but customer normative pressure does not play a role. In addition, our findings indicate that CFGI (especially for green strategy alignment and process coordination) is critical to environmental performance. This paper provides fruitful insights into the institutional theory by showing the causes of isomorphism from a supply chain perspective.
This study investigates how environmental penalties affect the share prices of Chinese listed companies. By linking the share prices of listed firms to the full administrative environmental penalty records from 2015 to 2020, market reactions to 3602 environmental violations measured by cumulative abnormal return ( CAR ) are studied. We find that after an environmental penalty, the share price of the violator would decline significantly, but with a small magnitude in general. Our results provide empirical evidence that companies are paying some extra costs in the stock market for their environmental noncompliance in China, especially for environmental penalties with large fines, business bans, or those issued by high‐level governments. Also, large, state‐owned, and key emission unit companies are found to be less affected.
Purpose
Blockchain is a distributed ledger technology that uses cryptography to ensure transmission and access security, which provides solutions to numerous challenges to complex supply networks. The purpose of this paper is to empirically test the impact of blockchain implementation on shareholder value varying from internal and external complexity from the complex adaptive systems (CASs) perspective. It further explores how business diversification, supply chain (SC) concentration and environmental complexity affect the relationship between blockchain implementation and shareholder value.
Design/methodology/approach
Based on 138 blockchain implementation announcements of listed companies on the Chinese A-share stock market, the authors use event study methodology to evaluate the impact of blockchain implementation on shareholder value.
Findings
The results show that blockchain implementation has a positive impact on shareholder value, and this impact will be moderated by business diversification, SC concentration and environmental complexity. In addition, environmental complexity exerts a moderating effect on SC concentration. In the post hoc analysis, the authors further explore the impact of blockchain implementation on long-term operational performance.
Originality/value
This is the first research empirically examining the effect of blockchain implementation on shareholder value varying from internal and external complexity from the CASs perspective. This paper provides evidence of the different effects of blockchain implementation on short- and long-term performance. It adds to the interdisciplinary research of information systems (IS) and operations management (OM).
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.
Taking the greatest socially responsible sovereign wealth fund in the world, namely, the Norwegian Government Pension Fund‐Global (GPF‐G), as a proxy for the world market portfolio, and collecting investment data from 2006 to 2021, our research studies how the attitude of environmentally concerned investors has changed, on different markets, over time, particularly before and after the 2015 Paris Climate Agreement. We investigate, with an event study methodology, what happens to stock prices when companies are excluded from the GPF‐G portfolio for serious environmental violations, unacceptable level of greenhouse gas emissions, or for their involvement in thermal coal processing. In line with previous studies, our results show that Paris Agreement has acted as a catalyst for environmentally conscious behavior by international investors, and this is particularly true in Anglo‐Saxon countries. Especially US, Japanese, Chilean, Indian, and Canadian investors care about the environmental issues that have led to the exclusion from the fund investment portfolio. To the contrary, investors in China, Germany, Australia, and UK seem to have an opposite reaction, as the prices of the excluded stocks increase.
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.
This article outlines the main methodological implications of using Bloomberg SPLC, FactSet Supply Chain Relationships, and Mergent Supply Chain for academic purposes. These databases provide secondary data on buyer-supplier relationships that have been publicly disclosed. Despite the growing use of these databases in supply chain management (SCM) This article is protected by copyright. All rights reserved. research, several potential validity and reliability issues have not been systematically and openly addressed. This article thus expounds on challenges of using these databases that are caused by (1) inconsistency between data, SCM constructs, and research questions (data fit); (2) errors caused by the databases' classifications and assumptions (data accuracy); and (3) limitations due to the inclusion of only publicly disclosed buyer-supplier relationships involving specific focal firms (data representativeness). The analysis is based on a review of previous studies using Bloomberg SPLC, FactSet Supply Chain Relationships, and Mergent Supply Chain, publicly available materials, interviews with information service providers, and the direct experience of the authors. Some solutions draw upon established methodological literature on the use of secondary data. The article concludes by providing summary guidelines and urging SCM researchers toward greater methodological transparency when using these databases.
The Paris Agreement and the United Nations' Sustainable Development Goals clearly demonstrate the need for global energy transitions. Evolving energy generation and the expansion of the renewable energy capacity and associated infrastructure contribute to changing and increasing demands for minerals and metals. The potential negative environmental, social and economic impacts of increased mineral resource production have been contested and are under increasing scrutiny by both academia and civil society. Responsible Sourcing (RS) has become a management approach for companies and policymakers to identify, monitor and address potential negative impacts along their raw materials' supply chains. Although RS might contribute to sustainability along the supply chain, this paper raises the question of whether it also contributes to Natural Resource Justice (NRJ) in energy transitions. Based on a bibliometric network analysis, this study investigated current narratives of RS literature and to what degree core aspects of NRJ (e.g., distribution of benefits and burdens, power asymmetries, property rights) are reflected in the RS debate following a deductive approach. The results obtained show that compared with other sectors (e.g., timber, food, biomass, textiles) debates on RS in renewable energy-related sectors are still scarce and fragmented. The analysis indicates that different foci are aligned with one or more of the traditional three sustainability dimensions (i.e., environmental, social, economic), while few addressed aspects of NRJ. The authors observed a distinct lack of holistic justice considerations in the current RS debate and only a few individual issues are discussed, such as the detection of burden shifting, accountability for supplier behavior, and sharing of financial benefits. This research contributes to the understanding of different RS approaches and extends the RS discussion to NRJ considerations in energy transitions. It also points out important paths for future research to contribute to just energy transitions.
Predicting stock price movements is a challenging task. Previous studies mostly used numerical features and news sentiments of target stocks to predict stock price movements. However, their semantics-based sentiment analysis is sub-optimal to represent real market sentiments. Moreover, only considering the information of target companies is insufficient because the stock prices of target companies can be affected by their related companies. Thus, we propose a novel Multi-source Aggregated Classification (MAC) method for stock price movement prediction. MAC incorporates the numerical features and market-driven news sentiments of target stocks, as well as the news sentiments of their related stocks. To better represent real market sentiments from the news, we pre-train an embedding feature generator by fitting the news to real stock price movements. Embeddings given by the pre-trained sentiment classifier can represent the sentiment information in vector space. Moreover, MAC introduces a graph convolutional network to capture the news effects of related companies on the target stock. Finally, MAC can predict stock price movements for the next trading day based on the aforementioned features. Extensive experiments prove that MAC outperforms state-of-the-art baselines in stock price movement prediction, Sharpe Ratio, and backtesting trading incomes.
This study investigates the impact of the Chinese government's Level I emergency response policy on manufacturers' stock market values. We empirically examine the roles of human resource dependence (labor intensity) and operational slack within the context of supply chain resilience. Through an event study of 1357 Chinese manufacturing companies, we find that the government's emergency response policy triggered statistically significant positive abnormal returns for manufacturers. However, we also find that there exists a negative impact on abnormal returns for manufacturers that are labor‐intensive, giving rise to arguments based in resource dependence theory. In addition, the results indicate the positive role played by operational slack (e.g., financial and inventory slack) in helping manufacturers maintain operations and business continuity, effectively mitigating risks and adding to the manufacturers' resilience. With these findings, we contribute to operations and supply chain management by calling attention to the importance of human resource redundancy while at the same time identifying financial slack and inventory as supply chain resilience strategies that were able to mitigate pandemic‐related risks. Although government policies and regulations are often central for supply chain risk mitigation, they may sometimes also carry secondary risks; manufacturers should monitor and ideally anticipate public policy interventions. Slack financial resources provide greater flexibility in a company's response to an unanticipated event and should thus be emphasized; nevertheless, the value of excess inventory should not be neglected. A greater dependence on labor exposes manufacturers to greater risks, especially when public policy curtails travel and the movement of labor. Governments should use policymaking as a means to provide guidance and support regarding the deployment of manufacturers' operational slack, especially financial slack.
The paper considers a firm that has the option to invest in a project with an unknown profitability, which is affected by general market uncertainty. The project has the adverse effect that it can cause environmental damage. In case the firm has the option to undertake preventive investment at the time of market entry, we get that preventive investment is significant when (i) the project revenue is large, (ii) the environmental incidents potentially cause a huge reduction of firm value, and (iii) when preventive investment substantially decreases the probability of environmental damage occurrence. The optimality of such a preventive investment results in a significant delay of the project investment. When the firm has the possibility to invest in the project first and do the preventive investment later, this will accelerate the project investment and will result in a larger preventive investment when it indeed will decide to do that one later.
Business scandals like sweatshop labor have received growing attention in the field of supply management. Yet little is known about how detrimental such scandals are to buying firms. This study aims to fill this gap by examining the magnitude of the consequences of what are termed supplier sustainability risks (SSRs). To this end, we conduct an event study analysis followed by regression modeling based on a sample of 196 US publicly traded firms’ SSRs. The results reveal that SSRs are associated with a 1.00% reduction in shareholder wealth. The market reacts negatively but not differently to the two types of SSR: process‐related risks and product‐related risks. Finally, a firm's moral capital does play a mitigating role for SSRs and process‐related risks; however, it does not provide insurance‐like protection for product‐related risks.
This article is protected by copyright. All rights reserved.
When suppliers (i.e., contract manufacturers) fail to comply with health and safety regulations, buyers (retailers) are compelled to improve supplier compliance by conducting audits and imposing penalties. As a benchmark, we first consider the independent audit-penalty mechanism in which the buyers conduct their respective audits and impose penalties independently. We then examine the implications of two new audit-penalty mechanisms that entail a collective penalty. The first is the joint mechanism under which buyers conduct audits jointly, share the total audit cost incurred, and impose a collective penalty if the supplier fails their joint audit. The second is the shared mechanism in which each buyer conducts audits independently, shares its audit reports with the other buyers, and imposes a collective penalty if the supplier fails any one of the audits. Using a simultaneous-move game-theoretic model with two buyers and one supplier, our analysis reveals that both the joint and the shared mechanisms are beneficial in several ways. First, when the wholesale price is exogenously given, we establish the following analytical results for the joint mechanism in comparison with the independent mechanism: (a) the supplier’s compliance level is higher; (b) the supplier’s profit is lower while the buyers’ profits are higher; and (c) when the buyers’ damage cost is high, the joint audit mechanism creates supply chain value so the buyers can offer an appropriate transfer payment to make the supplier better off. Second, for the shared audit mechanism, we establish similar results but under more restrictive conditions. Finally, when the wholesale price is endogenously determined by the buyers, our numerical analysis shows that the key results continue to hold.
The online appendix is available at https://doi.org/10.1287/msom.2017.0653 .
Despite the importance that the media has in regard to influencing people’s perceptions of wrongdoing, organizational scholars have paid little attention to how the media reports wrongdoing. This article starts to address this gap by considering how the media frames corporate scandals. We empirically examine how four different German newspapers reported on the Volkswagen diesel scandal. We inductively identify the constitutive elements of a general corporate scandal frame. Then, we analyze how each newspaper framed the scandal through combinations of different elements. We identify from our dataset four frames of corporate scandals that newspapers applied: legalistic, contextual, reputational, and scapegoating. Our article testifies to the importance of cross-fertilization between research on mass communication and political science on one side, and organizational research on the other side and, more generally, it calls for more attention to be given to the media in the study of scandals and organizational wrongdoing.
While researchers have focused on the nature of interpersonal communication on social media, few have investigated the patterns and structures of interactions among stakeholders engaged in an unexpected event. On September 18, 2015, the United States Environmental Protection Agency issued a notice of violation of the U.S. Clean Air Act to Volkswagen Group of America, Inc., citing Volkswagen’s inappropriate software that circumvented the United States’ emission standards. This research is systemically designed to examine the evolutionary structures of interpersonal issue networks on social media by focusing on the 2015 Volkswagen scandal on social media. The interpersonal network emerged and evolved to build a discourse on issues by stakeholders after the event. By using longitudinal data collected from the Volkswagen USA’s Facebook page between September 17 and 20, 2015, this research tests four hypothesized network structures, which are reciprocity, transitivity, popularity, and activity, which assess the evolution of interpersonal issue networks. The results of exponential random graph models, analyzing 4131 stakeholders, show that interpersonal issue networks on social media have evolved overtime into a set of reciprocal relations and stakeholders transmitting critical information to bystanders. The findings imply that stakeholders who have Volkswagen’s cars and stocks play a critical role in placating the scandal by mutually interacting with diverse bystanders on social media.
In September 2015, Volkswagen (hereafter VW) made news headlines all of sudden regarding recalls of nearly 500,000 diesel cars in the U.S., branded as VW and its upscale Audi. Within a few days, VW saw a massive sell-off of its stock, wiping out $16.9 billion of market value of the company. Later, VW admitted that its 11 million diesel vehicles in the world were equipped with a defeat device disguised laboratory diesel-exhaust emissions tests. After the scandal erupted, VW’s economic situation was damaged from worldwide recalls, loss of sales, and decreased stock market price. The total cost of VW’s losses was yet to be determined due to the immense calculations and early period of the scandal. However, experts estimated the scandal would cost tens of billions of dollars or beyond to the company.
Industrial production output is generally correlated with the state of the economy. Nonetheless, during times of economic downturn, some industries take the biggest hit, whereas at times of economic boom they reap most benefits. To provide insight into this phenomenon, we map supply networks of industries and firms and investigate how the supply network structure mediates the effect of economy on industry or firm sales. Previous research has shown that retail sales are correlated with the state of the economy. Since retailers source their products from other industries, the sales of their suppliers can also be correlated with the state of the economy. This correlation represents the source of systematic risk for an industry that propagates through a supply chain network. Specifically, we identify the following mechanisms that can affect the correlation between sales and the state of the economy in a supply chain network: propagation of systematic risk into production decisions, aggregation of orders from multiple customers in a supply chain network, and aggregation of orders over time. We find that the first effect does not amplify the correlation; however, the latter two intensify correlation and result in the amplification of correlation upstream in supply networks. We demonstrate three managerial implications of this phenomenon: implications for the cost of capital, for the risk-adjusted valuation of supply chain improvement projects, and for supplier selection and risk.
Data, as supplemental material, are available at http://dx.doi.org/10.1287/mnsc.2015.2187 .
This paper was accepted by Serguei Netessine, operations management.
Researchers in the field of corporate social responsibility (CSR) have examined a broad array of activities including environmental management, ethical issues, the advancement of a diverse workplace, safety, human rights, philanthropic donations, and community involvement. Yet despite over 30 years of inquiry in this field, there has been no holistic, empirical investigation of the particular dimensions or sets of activities that are encompassed by CSR and the relationship between ethics and CSR. In the purchasing and supply management literature, similar sets of activities have been investigated, but generally as separate, standalone streams of research with little recognition of their potential inter-relatedness. The current study empirically identified the dimensions of purchasing's involvement in CSR and applied the label purchasing social responsibility (PSR).
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.
Problem definition: Under what conditions and how can a buying firm, by committing to publish a list of its suppliers and/or the identities and violations of terminated suppliers, increase its expected profit and supplier responsibility? Academic/practical relevance: This paper contributes to a recent thrust in the operations-management literature on how various sorts of transparency influence social and environmental responsibility in a supply chain. In practice, companies are under pressure to publish their supplier lists and suppliers’ violations, and some are beginning to do so. This paper could help guide their decisions. Methodology: The methodology is game theory. Results: This paper shows how a buying firm can use transparency to reward a supplier for responsibility effort to eliminate social or environmental violations. By publishing its supplier list, the buying firm can signal that a supplier is responsible and generate profitable new business for the supplier. However, the resulting competition for the supplier’s scarce capacity could cause the buying firm to obtain fewer units or pay a higher price. We identify the conditions under which a buying firm should commit to publish its supplier list and conditions under which the buying firm should also help a supplier with cost reduction or capacity expansion. In addition, the paper shows how a buying firm can use transparency to punish a supplier for a responsibility violation—by warning other buying firms not to source from that supplier. Commitment to do so increases the supplier’s responsibility effort and can screen out a supplier with a known responsibility violation, thereby increasing a buying firm’s expected profit. If the supplier is uncertain whether it has a violation (e.g., faulty electrical wiring likely to cause a fire), then the two forms of transparency can be complementary. Managerial implications: Buying firms should consider transparency as a potentially profitable approach to mitigating social and environmental violations in their supply chains.
Problem definition: This paper provides empirical evidence on the effect of the 2011 Great East Japan Earthquake (GEJE) on the financial performance of firms. Academic/practical relevance: The GEJE was characterized as the most significant disruption ever for global supply chains. In its aftermath, there was a great deal of debate about the risks and vulnerabilities of global supply chains, and there were calls to redesign and restructure supply chains. Methodology: We empirically estimate the effect of the GEJE on the stock prices of firms. Our analyses are based on a global sample of 470 firms collected from articles and announcements in the business press that identify affected firms, as well as 382 firms that are not mentioned in the business press but are in industries potentially subject to contagion or competitive effects. Results: We estimate that firms experiencing supply chain disruptions as a result of the GEJE lost on average 5.21% of their shareholder value during the one-month period after the GEJE. For Japanese firms, the effect was much more severe with an average 9.32% loss in shareholder value. Non-Japanese firms averaged a 3.73% loss in shareholder value. We also find that upstream and downstream supply chain propagation effects from the GEJE are negative, and the contagion effect on firms related to the nuclear industry is very negative. For firms in the rebuilding industries or competitors to firms affected by the GEJE, the competitive effect from the GEJE is positive. Managerial implications: The loss suffered by both Japanese firms and non-Japanese firms experiencing supply chain disruptions as a result of the GEJE is economically significant. Although the loss is more severe for firms whose operations were directly affected by the GEJE, it is also significant for firms who experienced indirect effects from their upstream and downstream supply chain partners, further confirming the importance of supply chain risk mitigation strategies.
Consumers increasingly want to know more about where and how the products they purchase are being made. To create transparency requires a company to both gain visibility into its supply chain and disclose information to consumers. In this paper, we focus on the dimension of visibility and investigate when companies can benefit from greater supply chain visibility. To do so, we design an incentivized human–subject experiment to study two key questions: (i) How does supply chain visibility impact consumers’ valuations of a company’s social responsibility (SR) practices in its upstream supply chain? (ii) What roles do indirect reciprocity and consumers’ prosociality play in affecting their valuations under different levels of visibility? In our design, greater visibility is represented by lower uncertainty in the outcomes of a company’s SR efforts. Our results show that consumers value greater visibility regarding a company’s SR practices in the upstream supply chain. This is especially true if consumers exhibit a self-serving bias and use uncertainty as an excuse not to pay for SR. We also observe that high prosocial consumers do not exhibit strong indirect reciprocity. Conversely, indirect reciprocity significantly increases low prosocial consumers’ valuations under High visibility. Our work adds to the experimental literature focusing on transparency and SR (which has primarily studied disclosure) by examining the equally important but understudied dimension of visibility. Furthermore, our results on consumer heterogeneity offer insights into what SR information resonates with a company’s target consumers.
The online appendix is available at https://doi.org/10.1287/msom.2017.0685 .
We examine firms listed on the Shanghai/Shenzhen Stock Exchange to investigate stock market reactions to 294 Chinese manufacturing firms involved in 618 environmental incidents between 2006 and 2013. Through our event studies, we find empirical evidence of a significantly negative stock market reaction to announcements of environmental incidents. Our empirical analysis reveals that Chinese firms with a higher government share (of ownership) and recognition of social responsibility tend to be less affected by such incidents; however, Chinese firms with stronger personal political ties (i.e., top management teams or board members with concurrent or prior government appointments) are actually affected more when environmental incidents occur. Moreover, environmental incidents caused by Chinese firms can have a significantly negative impact on the market value of their overseas customers.
The online appendix is available at https://doi.org/10.1287/msom.2017.0680 .
The present work investigates the impact of negative events on supply chain partners. Through a contextualised
discussion of the literature on supply chains and on the efficient market hypothesis, it is
proposed that negative events negatively impact the market value of suppliers and customers. Following
an exploratory approach, 307 companies (21 source companies, 158 suppliers and 128 customers)
comprehending 20 cases of environmental disaster, corporate social irresponsibility, operational failure,
corporate fraud and corruption were analysed. Results show that in 12 out of the 20 cases investigated
supply chain partners indeed had their market value penalised, encompassing, to a greater or lesser
degree, all five categories of cases considered. Yet, while both suppliers and customers absorbed the
outcomes of negative events, suppliers seem to be at greater risk of sustaining such losses. Likewise,
cases in which the source companies were also negatively affected seem to be slightly more prone to
cause losses among suppliers and customers. In this sense, the concept of supply chain contamination is
coined to address the observed outcomes. The study offers new insights into the applicability of the
efficient market hypothesis and contributes to the assessment of the dissemination of negative events in
supply chains, a theme that, despite its potential detrimental consequences for firms and stakeholders,
has not yet been sufficiently treated in the Management literature.
We study the management of social responsibility in a three-tier supply chain in which a Tier 2 supplier sells to a Tier 1 supplier, which in turn sells to a Tier 0 buyer. The Tier 2 supplier potentially violates social and environmental standards, resulting in harm to the Tier 0 and 1 firms. Each member of the supply chain can exert effort to improve the responsibility in Tier 2, and the efforts of Tiers 0 and 1 are substitutable with one another and complementary to the efforts of Tier 2. We show that in this scenario the buyer’s optimal strategy is one of extremes, consisting of direct control (only Tier 0 works with Tier 2), delegation (only Tier 1 works with Tier 2), or no effort (neither firm works with Tier 2), and we characterize the features of Tiers 0, 1, and 2 that lead the buyer to favor each strategy. Under the buyer’s optimal strategy, we find that selection of Tier 1 and 2 suppliers for greater responsibility or lower cost, as well as increased pressure from external stakeholders (consumers, NGOs, and governments), may increase the chance of a responsibility violation when the buyer shifts from control to delegation. We further illustrate how responsibility management differ in three- and two-tier supply chains, and show that perverse reactions to better supplier selection and greater external stakeholder pressure never occur in a two-tier system, demonstrating the unique challenges associated with multitier responsibility management. Lastly, we show that appropriately designed non-compliance penalties to either Tier 0 or 1 when a Tier 2 violation occurs can coordinate the three-tier supply chain, i.e., make it perform like a two-tier system, though such penalties face implementation challenges in practice.
Companies that source from emerging economies often face supplier responsibility risks, namely, financial and reputational burdens that the companies have to bear when their suppliers' engagement in noncomplying labor and environmental practices is discovered by stakeholders or becomes public. To mitigate such risks, companies can invest in screening mechanisms and can design incentive schemes in sourcing contracts. However, the relative effectiveness of these actions is often not known. To address this problem, we develop a model that captures the economic tradeoffs faced by the supplier when committing a violation. The endogenized noncompliance probability can be influenced by various factors, including the supplier's intrinsic ethical level, which may not be observable to the buyer. We then consider the buyer's sourcing problem under such risks. We find that, when the buyer anticipates incurring a high cost due to supplier responsibility problems, it is generally ineffective to design incentive-compatible contracts to achieve “economic" screening of different supplier types — instead, a single contract to all types (i.e., a pooling contract) is optimal. On the other hand, “physical" screening by supplier certification, if designed properly, can be an effective solution to separate the supplier types and achieve lower sourcing costs. When certification is combined with audit and contingency payment, contracting exclusively with the certified supplier is optimal under certain conditions. These findings provide explanations for some of the observed practices used in industry to mitigate supplier responsibility risks.
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.
This study explores a new type of greenwashing behaviour, through the lenses of the “communicative constitution of organizations” (CCO), which challenges the dominant view in corporate social responsibility (CSR) studies. A theory-building case study was carried out by analysing the Volkswagen scandal. Both qualitative and quantitative data were obtained via a content analysis of both 2012–2014 CSR reports of the Volkswagen Group and a sample of 1151 U.S. newspaper headlines concerning Dieselgate, together with semi-structured interviews with former managers from Volkswagen. From a theoretical perspective, the study extends the greenwashing taxonomy by identifying a new type of irresponsible behaviour, namely “deceptive manipulation”. This reinforces the CCO perspective according to which sustainability communication acts as a constitutive force. In terms of managerial implications, the study suggests some approaches to prevent this specific type of greenwashing.
This article examines whether firm-level idiosyncratic shocks propagate in production networks. We identify idiosyncratic shocks with the occurrence of natural disasters. We find that affected suppliers impose substantial output losses on their customers, especially when they produce specific inputs. These output losses translate into significant market value losses, and they spill over to other suppliers. Our point estimates are economically large, suggesting that input specificity is an important determinant of the propagation of idiosyncratic shocks in the economy. JEL Codes: L14, E23, E32.
Companies that source from emerging economies often face supplier responsibility risks, namely, financial and reputational burdens that the companies have to bear when their suppliers’ engagement in noncomplying labor and environmental practices becomes public. To mitigate such risks, companies can invest in screening mechanisms and design incentive schemes in sourcing contracts. Common mitigation instruments include supplier certification, process audits, and contingency payments. The interactions of these instruments are often not well understood. We first note that the effectiveness of any mitigation instrument depends on how it changes the economic trade-offs faced by a supplier in compliance to social and environmental standard, and hence we develop a model that explicitly captures such trade-offs. As a result, our model endogenizes the supplier’s noncompliance probability and connects it with various factors, including the supplier’s intrinsic ethical level that is unobservable to the buyer. We then study the buyer’s optimal contracting problem under different mitigation instruments. We find that although the process audit and contingency payment instruments can directly lower supplier responsibility risk, they, acting alone, are not as effective as the supplier certification instrument in screening suppliers with different ethical levels. Nevertheless, these instruments are all complementary to each other; when used jointly, they make supplier screening more effective and result in lower sourcing cost. These findings provide explanations for some of the observed practices used in industry to mitigate supplier responsibility risks.
This paper was accepted by Serguei Netessine, operations management.
There is an established body of politically informed scholarly work that offers a sustained critique of how corporate business ethics is a form of organizing that acts as a subterfuge to facilitate the expansion of corporate sovereignty. This paper contributes to that work by using its critique as the basis for theorizing an alternative form of ethics for corporations. Using the case of the 2015 Volkswagen emissions scandal as an illustrative example, the paper theorizes an ethics that locates corporations in the democratic sphere so as to defy their professed ability to organize ethics in a self-sufficient and autonomous manner. The Volkswagen scandal shows how established organizational practices of corporate business ethics are no barrier to, and can even serve to enable, the rampant pursuit of business self-interest through well-orchestrated and large-scale conspiracies involving lying, cheating, fraud and lawlessness. The case also shows how society, represented by individuals and institutions, is able to effectively resist such corporate malfeasance. The ‘democratic business ethics’ that this epitomizes is one where civil society holds corporations to account for their actions, and in so doing disrupts corporate sovereignty. This ethics finds practical purchase in forms of dissent that redirect power away from centres of organized wealth and capital, returning it to its democratically rightful place with the people, with society.
Prominent buyers' brands have been damaged because their suppliers caused major harm to workers or the environment, e.g., through a deadly factory fire or release of toxic chemicals. How can buyers motivate suppliers to exert greater care to prevent such harm? This paper characterizes a "backfiring condition" under which actions taken by prominent buyers (increasing auditing, publicizing negative audit reports, providing loans to suppliers) motivate a supplier to exert greater effort to pass the buyer's audit by hiding information and less care to prevent harm. Intuitively appealing actions for a buyer (penalizing a supplier for harming workers or the environment, or for trying to deceive an auditor) may be similarly counterproductive. Contrary to conventional wisdom, squeezing a supplier's margin (by reducing the price paid to the supplier or increasing wages for workers) motivates the supplier to exert greater care to prevent harm-under the backfiring condition. Whereas the necessary and sufficient condition depends on the relative convexity of the supplier's hiding cost function, a simple sufficient condition is that the supplier is likely to successfully hide information from the auditor, in equilibrium. Anecdotal evidence suggests that the backfiring condition is prevalent or becoming increasingly so. Similar insights apply to mitigation of unauthorized subcontracting.
We analyze the sourcing decision of a buyer choosing between two supplier types: responsible suppliers are costly but adhere to strict social and environmental responsibility standards, whereas risky suppliers are less expensive but may experience responsibility violations. A segment of the consumer population, called socially conscious, is willing to pay a higher price for a product sourced from a responsible supplier and may not purchase in the event of a responsibility violation from a risky supplier. We identify four possible sourcing strategies that a buyer might employ: low cost sourcing (sourcing from the risky supplier), dual sourcing, responsible niche sourcing (sourcing from a responsible supplier and selling only to socially conscious consumers), and responsible mass market sourcing (sourcing responsibly and selling to all consumers). We determine when each strategy is optimal and show that efforts to improve supply chain responsibility that focus on consumers (by increasing their willingness to pay for responsibility or increasing the number of consumers that are socially conscious) or increasing supply chain transparency may lead to unintended consequences, such as an increase in risky sourcing. Efforts that focus on enforcement and penalizing the buyer, however, never backfire and always lead to more responsible sourcing and less risky sourcing.
This paper was accepted by Yossi Aviv, operations management.
The unethical behavior of suppliers, such as the use of child labor or the use of unsafe processes, is becoming an increasingly common problem in many industries. Despite lower sourcing costs, such social irresponsibility can have a severe negative effect on firms because of growing awareness and punishment from consumers toward unethical practices. To study how ethical behavior of suppliers and supplier learning affect a firm׳s sourcing strategy, we analyze a buying firm׳s strategic sourcing decision on supplier selection between unethical and ethical suppliers by considering the risk likelihood and the impact to the firm of unethical events, and the supplier learning. We show that supplier learning matters and that the benefit of high learning rates may outweigh the concerns of unethical behavior or high ethical sourcing cost and so, long-term contracts are optimal. We also show that the firm may prefer a selection policy contingent on the realization of unethical events only when risk is low or impact is high. In addition, we show that a changing environment may cause the firm to take a more proactive sourcing strategy by adopting short-term switching policies.
Firms are increasingly looking to eradicate social and environmental non-compliances at their suppliers in response to increasing regulations, consumer demand, potential for supply chain disruptions, and to improve their social, environmental, and economic supply chain performance. This paper develops a model of the relationship between the buyer's supplier incentives and penalties for the supplier's social and environmental compliance, and the outcomes in terms of reduction of supplier social and environmental violations as well as the buyer's own operating costs. This model is tested empirically through analysis of a dataset of opinion-based survey responses from practitioners at 334 companies across 17 industries. The analysis finds specific penalties and incentives that are positively associated with reduced supplier violations and reduced buyer operating costs. In particular, offering suppliers incentives of increased business and training for improving social and environmental performance are strongly associated with a reduction in both violations and operating costs.This article is protected by copyright. All rights reserved.
This study examines whether shareholders are sensitive to corporations' environmental footprint. Specifically, I conduct an event study around the announcement of corporate news related to environment for all US publicly traded companies from 1980 to 2009. In keeping with the view that environmental corporate social responsibility (CSR) generates new and competitive resources for firms, I find that companies reported to behave responsibly toward the environment experience a significant stock price increase, whereas firms that behave irresponsibly face a significant decrease. Extending this view of "environment-as-a-resource," I posit that the value of environmental CSR depends on external and internal moderators. First, I argue that external pressure to behave responsibly towards the environment-which has increased dramatically over recent decades-exacerbates the punishment for eco-harmful behavior and reduces the reward for eco-friendly initiatives. This argument is supported by the data: over time, the negative stock market reaction to eco-harmful behavior has increased, while the positive reaction to eco-friendly initiatives has decreased. Second, I argue that environmental CSR is a resource with decreasing marginal returns and insurance-like features. In keeping with this view, I find that the positive (negative) stock market reaction to eco-friendly (-harmful) events is smaller for companies with higher levels of environmental CSR.
This paper examines whether firm-level idiosyncratic shocks propagate in production networks. We identify idiosyncratic shocks with the occurrence of natural disasters. We find that affected suppliers impose substantial output losses on their customers, especially when they produce specific inputs. These output losses translate into significant value losses, and they spill over to other suppliers. Our point estimates are economically large, suggesting that input specificity is an important determinant of the propagation of idiosyncratic shocks in the economy.
We find, like [Lang, L.H.P., Stulz, R.M., 1992. Contagion and competitive intra-industry effects of bankruptcy announcements: An empirical analysis, Journal of Financial Economics, 32(1), 45-60], that large firm bankruptcies generate a dominant contagion effect. A value-weighted portfolio of competitors' stocks experiences a significant loss of 0.56% in the three days centered around the Chapter 11 announcement. This represents an average loss of $3.32 for all the competitors combined for every dollar lost by the bankrupt firm. In addition, we find that small firm bankruptcies also generate a dominant contagion effect among smaller sized competitors; an equally-weighted portfolio of all competitors has a significant 0.12% drop. In a new approach to separate the contagion and competitive effects, we compare the stock price reactions of competitors who themselves subsequently file for bankruptcy in the next three years (candidates for contagion effect) with those who do not do so (candidates for competitive effect). As expected, candidates for contagion effect experience a significant, negative three-day stock price reaction of -4.68%. However, contrary to expectations, candidates for competitive effect also have a significant, negative return (-0.49%), suggesting that the competitive effect is weak at best since it is dominated by the contagion effect even in this sample. Other procedures to identify candidates for competitive effect generally yield similar findings. Finally, we analyze competitors' stock price reactions based on selected characteristics (e.g., industry concentration, and leverage), with similar results as before. One explanation for the failure to detect a competitive effect is that the impact may already have been incorporated in stock prices prior to the filing for Chapter 11. Consistent with this explanation, we find significant positive stock price reactions by competitor stocks for the hundred days prior to the bankruptcy announcement.
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 study investigates how supply chain sourcing strategies are associated with product quality recalls. In particular, the research examines how make-or-buy decisions (i.e., outsourcing), the use of foreign suppliers (i.e., offshore outsourcing), the relocation of production to offshore markets (i.e., offshoring), and decisions to consolidate supply bases (i.e., the use of few vs. myriad suppliers) are related to product recalls. Product recalls are serious quality failures in supply chains with significant, negative impacts on firm performance. Product recalls are frequently connected to the globalization of supply chains. Globalization has, at times, promoted inconsistency in quality control and standards, leading to quality problems and failures. Data across multiple industries, with widely reported recalls, have been collected and analyzed using regression techniques. Our findings indicate that offshore outsourcing has a greater impact on recalls than offshoring without outsourcing; outsourcing domestically has the least influence. Outsourcing to a smaller supplier base may lead to fewer recalls at low levels of outsourcing. However, it may exacerbate the impact of outsourcing on recalls at high levels of outsourcing.
The relationship between emissions reduction and firm financial performance has been studied with mixed results. We consider potential sources of this ambiguity by examining announcements of voluntary emission reduction (VER) from 1990 to 2009. We measure the stock market reaction associated with VER announcements to estimate the effects of time, emissions type, and whether the reduction was announced ex ante or ex post. We find that the market reaction to VER significantly decreased over time. The changing nature of the market reaction to VER over time highlights the importance of evaluating the financial impact of any VER in current context rather than relying on past findings. We also find that the market reaction is more positive if the reduction is for greenhouse gas (GHG) rather than other emissions types. In light of the increasing concern with GHGs, this finding should be welcome news for managers. Last, we find a more positive market reaction for VER announcements that are pledges or statements of intent rather than realized achievements of VER. Managers contemplating VER might find benefit (and at least no harm) in announcing their intent to reduce emissions rather than waiting until they have achieved the reduction. This article is protected by copyright. All rights reserved.
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.
Large revisions in dividends are accompanied by stock price reactions for industry rivals of the announcing firm. Though these effects are near-zero on average, their magnitude differs systematically across the firms in the industry. Rivals that are unlikely to be affected by competitive realignments within the industry tend to experience stock price effects like those of the announcing firm. Those that are likely to be affected tend to experience statistically insignificant reactions of the opposite sign. Thus, for some rivals, competitive effects apparently offset contagion effects. We find supporting results for changes in rival's dividends over a longer period.
Codes of conduct have become the perhaps most often used tool to manage corporate social responsibility (CSR). Researchers
have primarily analysed such documents at company-wide or trans-company levels, whereas there is a dearth of studies into
the use of codes for particular corporate functions. Hence, this article will examine one particular group of sub-company
level codes, namely codes of conduct that stipulate CSR criteria for suppliers. Examining such ethical sourcing policies adopted
by the FTSE100 corporations, the article draws out what environmental, social and economic issues large corporations perceive
to be important in the management of their supply chains. At an aggregate level, the coverage of CSR issues is rather extensive,
yet at the level of the individual corporation a degree of selectivity in the issues that are addressed becomes noticeable.
The code content analysis furthermore confirms the business case and public pressure to be the most important drivers of CSR.
Finally, the study highlights the role of isomorphic processes in the adoption of CSR tools.
Extant research examines the extent to which bankruptcy has intra-industry valuation consequences. This study broadens the investigation by examining the wealth effects of distress and bankruptcy filing for suppliers and customers of filing firms. On average, important wealth effects occur prior to and at bankruptcy filings and extend beyond industry competitors along the supply chain. Specifically, distress related to bankruptcy filings is associated with negative and significant stock price effects for suppliers. Supplier wealth effects are more negative when intra-industry contagion is more severe. We also investigate the importance of industry structure, specialized product nature, and leverage on supply chain effects.
We investigate the upstream and downstream product-market effects of a large sample of horizontal mergers and acquisitions from 1980 to 1997. We construct a data set that identifies the corporate customers, suppliers, and rivals of the firms initiating horizontal mergers and use this data set to examine announcement-related stock market revaluations and post-merger changes in operating performance. We find little evidence consistent with increased monopolistic collusion. However, we do find evidence consistent with improved productive efficiency and buying power as sources of gains to horizontal mergers. The nature of the buying power gains, i.e., rents from monopsonistic collusion or improved purchasing efficiency, is also investigated.
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.
This paper investigates the effect of bankruptcy announcements on the equity value of the bankrupt firm's competitors. On average, bankruptcy announcements decrease the value of a value-weighted portfolio of competitors by 1%. This negative effect is significantly larger for highly levered industries and industries where the unconditional stock returns of the nonbankrupt and bankrupt firms are highly correlated; the effect is significantly positive for highly concentrated industries with low leverage, suggesting that in such industries competitors benefit from the difficulties of the bankrupt firm.
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.
Medical devices play an increasingly significant role in the delivery of health care today. However, persistent quality problems with medical devices and the associated recalls present potential health risks to patients and personnel using these devices. This study addresses three key issues in this regard. First, it empirically assesses the financial implications of medical device recalls to understand if these consequences are severe enough to deter firms from introducing potentially hazardous medical devices into the market, as can be inferred from the literature. Second, the study considers a cross section of medical device manufacturers to examine the effect of firm characteristics on the costs of poor quality. Third, in an attempt to explore the sources of recalls, this study investigates firm characteristics that are likely to be associated with device recalls. The econometric analyses in the study are based on data from manufacturers in the medical device industry over a four-year period (2002–2005). Contrary to our expectations, the findings of the study indicate that at an aggregate level, the market penalties for medical device recalls are not significant, i.e., at the aggregate level, the costs of poor quality are not severe. Furthermore, we find that the magnitude of financial consequences of device recalls is affected by the product scope, sales, growth prospects, and the capital structure of a firm. In our analyses exploring the sources of device recalls, we find that firms with a research and development focus, developing broader product portfolios, have a higher likelihood of device recalls. Also, we find that the likelihood of recalls decreases with prior recall experience, indicating the presence of learning. Implications of the study findings, limitations, and directions for future research are identified.
This paper was accepted by Sampath Rajagopalan, operations and supply chain management.
We examine the extent to which announcements of open market share repurchase programs affect the valuation of competing firms in the same industry. On average, although firms announcing open market share repurchase programs experience a significantly positive stock price reaction at announcement, portfolios of rival firms in the same industry experience a significant and contemporaneous negative stock price reaction. This suggests that perceived changes in the competitive positions of the repurchasing firms occur at the expense of rival firms and dominate any signals of favorable industry conditions. Thus, the competitive intra-industry effects of open market repurchases outweigh any contagion effects. In addition, cross-sectional tests indicate that these competitive effects are more pronounced in industries characterized by a lower degree of competition and the less correlated the stock returns of the repurchasing firm and its rivals.
Recent studies argue that the spread-adjusted Taylor rule (STR), which includes a response to the credit spread, replicates monetary policy in the United State. We show (1) STR is a theoretically optimal monetary policy under heterogeneous loan interest rate contracts in both discretionay and commitment monetary policies, (2) however, the optimal response to the credit spread is ambiguous given the financial market structure in theoretically derived STR, and (3) there, a commitment policy is effective in narrowing the credit spread when the central bank hits the zero lower bound constraint of the policy rate.
This paper finds evidence of return predictability across economically linked firms. We test the hypothesis that in the presence of investors subject to attention constraints, stock prices do not promptly incorporate news about economically related firms, generating return predictability across assets. Using a data set of firms' principal customers to identify a set of economically related firms, we show that stock prices do not incorporate news involving related firms, generating predictable subsequent price moves. A long-short equity strategy based on this effect yields monthly alphas of over 150 basis points. Copyright (c) 2008 The American Finance Association.
Bosch settles over diesel emissions scandal; retail & consumer: Defeat devices
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Can global brands create just supply chains?
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The long-term cost of Volkswagen’s emissions scandal
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Business news: Volkswagen makes electric move
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