Impact of modern slavery allegations on operating performance

Abstract

PurposeModern slavery is a humanitarian problem that affects global supply chains. Given the increasing pressures from legislature, consumers and investors, firms have a growing interest in eliminating forced labor and modern slavery from their supply chains. However, the impact of modern slavery on firm performance has not been shown before. This paper aims to investigate the impact of modern slavery allegations on companies’ operational performance. It also looks at the role of corporate social responsibility (CSR) efforts with respect to modern slavery.Design/methodology/approachThe authors collect news articles on modern slavery in the global supply chains. The authors use an event study and use a robust matching method to measure the operational impact of modern slavery allegations. The authors also analyze the effects of media coverage and CSR practices on the relationship between allegations and firm performance.FindingsThe results show that modern slavery allegations do have a negative impact on performance, but this impact does not last long. The authors also show that strong CSR practices help firms mitigate the negative effect of these allegations.Research limitations/implicationsBecause the issue is hidden, as a result limited data, the research results may lack generalizability. Therefore, researchers are encouraged to retest the proposed propositions in the future.Practical implicationsThe paper includes implications for the development of socially responsible supply chains and financial impact.Originality/valueThis paper presents the first empirical research investigating the impact of modern slavery allegations on companies’ operational performance.