The impact of supply chain disruptions on stockholder wealth in India

摘要

Purpose - Supply chain structure, characteristics, and applicable policies differ between developing and developed countries. While most supply chain management research is directed toward supply chains in developed countries, the authors wish to explore the financial impact of disruptions on supply chains in a developing country. The purpose of this paper is to highlight the importance of effective supply chain management practices that could help avoid or mitigate disruptions in Indian companies. The authors study the stock market impact of supply chain disruptions in Indian companies. The authors also aim to understand the difference in financial implications from disruptions between companies in India and the USA. Design/methodology/approach - Event study methodology is applied on supply chain disruptions data from Indian companies. The data are compiled from public news release in Indian press. A data set of 301 disruptions for a ten-year period from 2003-2012 is analyzed. Stock valuation of a company is used to assess the financial impact. Findings - The results show that Indian companies on average lose -2.88 percent of shareholder wealth in an 11-day window covering the event day and five days pre- and post-disruption announcement. A significant stock decline was observed as early as three days prior to announcement, indicating possibility of insider trading and information differentials between investors. Irrespective of the location and responsibility of a disruption, companies experience significant negative returns. Company size, book-to-market ratio, and debt-to-equity ratio were found to be insignificant in affecting the stock market reactions to disruptions. The authors also compiled supply chain disruptions data for US companies. When compared to the US companies, Indian companies register a significantly higher stock decline in the event of a disruption. Research limitations/implications - Supply chain disruptions data from India and the USA are analyzed. Broad applicability of results across countries may require studying other developing countries. The research demonstrates potential effectiveness of investment in supply chain management initiatives. It also motivates research focussed specifically on supply chains in developing countries. Practical implications - Supply chain decision makers in India could benefit from investment in disruptions management and mitigation practices. The results provide a valuation of effective supply chain management. The findings provide guidance for investors in making decisions when supply chains face disruptions. Originality/value - The paper studies the financial consequences of supply chain disruptions in a developing country. The study is valuable because of increasing globalization, outsourcing, and the economic role of developing countries.