The effect of supply chain glitches on shareholder wealth

Abstract

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.

Decentralized Supply Risk Management

“…We think that an important future research direction is to adopt a more data-driven approach. Such data-driven research can be in the form of empirical research, which would take advantage of increasing amounts of data about the causes, durations and costs of supply disruptions (e.g., Hendricks and Singhal, 2003) to validate theoretical recommendations and to quantify the value of various tools for decentralized risk management. Alternatively, data-driven research can take the form of experimental studies, which could explore the effects of managerial attitudes toward supply risk (e.g., Schweitzer and Cachon, 2000) and the interactions between multiple players in decentralized systems in experimental settings (see Trading Agent Competition, http: //www.sics.se/tac).…”

Cash flow management and manufacturing firm financial performance: A longitudinal perspective

“…Firm size also has been shown to impact the market valuation of a corporation (Dowell et al, 2000;King & Lenox, 2002). To control for firm size, this study adopts the approach used in both Ehie and Olibe (2010) and Hendricks and Singhal (2003) and utilized Quarterly Sales as a proxy to control for firm size. The choice of Quarterly Sales over Total Assets as the proxy for firm size was made to avoid potential multicollinearity issues because Total Assets is the denominator of the dependent variable.…”

Buyer perceptions of supply disruption risk: A behavioral view and empirical assessment

“…Supply disruptions can be characterized as glitches (Hendricks and Singhal, 2003) and may be attributable to many factors including supply market complexities and the importance of the purchased product (Kraljic, 1983). Supply disruptions may have immediate or delayed negative effects on buying firm performance over the short and/ or long-term, pending the severity of the disruption and the buying firm's recovery capabilities (Sheffi and Rice, 2005).…”