The Impact of the Bio-terrorism Act on the Supply Chain and Firm Value

Abstract

On June 12, 2002, President Bush signed into law the Public Health Security and Bioterrorism Preparedness and Response Act of 2002. The Bioterrorism Act requires domestic firms and importers to register their agribusiness facilities with the U.S. government, to notify Homeland Security prior to shipment of agricultural products, and to keep records on the origination of agricultural inputs and the destination of agricultural outputs. Thus, the Act significantly altered the U.S. regulatory climate for both U.S. and foreign food industry firms who do business in the U.S. We present evidence that the passage of the Bioterrorism Act resulted in an average 3.2% decline in the market value of equity of domestic food industry firms. Cross-sectional analysis suggests that costs are increasing in the diversity of the firms’ supply chains. Contrary to the conclusions of prior research, we also find that the Bioterrorism Act does not constitute a non-tariff barrier to Canadian food firms. We base this conclusion on the fact that the negative wealth effects for U.S. firms are similar in magnitude to those previously reported for Canadian firms.