Strategic Disclosure of Disruptions and Firm Stock Performance – An Event Study

Abstract

Companies’ announcements are a signal to the market of their strategic decisions and intentions. Some firms create “strategic noise” to mitigate the effects of potentially negative disclosures by dampening any negative news with some important but unrelated information. This study examines the effects of the timing of supply chain disruption announcements on a firm’s stock performance. The results of our analysis are based on a sample of 29 companies which made announcements of supply chain disruptions that affected their operations between 2016 - 2018. We employ an event study methodology and examine the abnormal returns of companies in our sample to determine if the event – the supply chain disruption had an effect of the firm’s stock price. Our findings, although statistically insignificant, indicate that the timing of announcements does have an effect on a firm’s stock performance. We found that companies in our sample experienced positive abnormal returns relative to announcing an event and reporting a supply chain disruption. This study also examines whether the composition of a firm’s top management team (TMT) and its reputation in the market mitigate the effects of any announcements of a supply chain disruption. Our study contributes to the operations and supply chain management literature by advancing the integrated and contingency and signaling theoretical framework through which we examine these phenomena.