Dark Knights Rising: The Aurora Theater and Newtown School Massacres and Shareholder Wealth

Abstract

PurposeThis study analyzes the stock price impact of the Aurora theater and Newtown (Sandy Hook) school massacres on both domestic (US) and foreign theater operators and US gun manufacturers in an effort to document the economic effects of these tragedies. MethodsThe well-established “event study” methodology from the fields of economics and finance is employed to assess the impact of the shootings on the affected companies after controlling for risk and overall market movements. ResultsThe Aurora theater shooting resulted in striking declines for Cinemark (the targeted theater) as well as major US competitors, but had no impact on overseas theater chains. Smith & Wesson (maker of the gun used in Aurora) showed no response, whereas Ruger (a competitor) exhibited large gains. Both Smith & Wesson and Ruger plunged after the Newtown shooting, although neither made the weapons used in the shooting. ConclusionsContrary to prior research on workplace homicides, the results show that random mass shootings have profound effects on targeted companies. In addition, the results suggest the presence of a very strong “contagion effect” (where negative events affecting one company impact others in the same industry). The negative responses of both publicly-traded US firearms manufacturers to the Newtown shooting suggests a “sea-change” in the debate over gun ownership in the US.