Mitigating the negative financial effects of extreme weather events through supply chain analytics

Abstract

Despite extensive discussions on the value of integrating big data analytics into supply chains, or supply chain analytics (SCA) for short, it remains unclear whether SCA can effectively help firms mitigate the negative financial impacts of extreme weather events. To address this important research question, we first employed the event study methodology to quantify extreme weather events' financial effects in terms of abnormal stock returns. Then, we compared the difference in abnormal stock returns between firms that have adopted SCA and matched control firms without SCA adoption. Our event study results indicate that, although these events affected firms' stock returns negatively, the effects were less severe for firms with (rather than without) SCA adoption. Furthermore, firms having more stable innovation outputs reaped greater benefits from SCA in the extreme weather context. Conversely, firms facing more unstable market demands benefited more from SCA in the extreme weather context. Overall, our research demonstrates the mitigating role played by SCA during extreme weather events but also reveals how this mitigating role is contingent on the firm's internal and external operating uncertainties.