The Effect of Operational Slack, Diversification, and Vertical Relatedness on the Stock Market Reaction to Supply Chain Disruptions

Journal of Operations Management Volume 27, Issue 3, June 2009, Pages 233-246

Posted: 15 Aug 2013

See all articles by Kevin B. Hendricks

Kevin B. Hendricks

Wilfrid Laurier University - School of Business & Economics

Vinod R. Singhal

Georgia Institute of Technology - Scheller College of Business

Rongrong Zhang

Georgia Southern University

Date Written: August 24, 2009

Abstract

This paper empirically examines whether operational slack, business diversification, geographic diversification, and vertical relatedness influence the stock market reaction to supply chain disruptions. The results are based on a sample of 307 supply chain disruptions announced by publicly traded firms during 1987-1998. Our analysis shows that firms with more slack in their supply chain experience less negative stock market reaction. The extent of business diversification has no significant effect on the stock market reaction. Firms that are more geographically diversified experience a more negative stock market reaction. We find that firms with a high degree of vertical relatedness experience a less negative stock market reaction. These results have important implications on how firms design and operate their supply chains to mitigate the negative effect of supply chain disruptions.

Keywords: Supply chain, Disruptions, Stock price performance

JEL Classification: G14

Suggested Citation

Hendricks, Kevin B. and Singhal, Vinod R. and Zhang, Rongrong, The Effect of Operational Slack, Diversification, and Vertical Relatedness on the Stock Market Reaction to Supply Chain Disruptions (August 24, 2009). Journal of Operations Management Volume 27, Issue 3, June 2009, Pages 233-246 , Available at SSRN: https://ssrn.com/abstract=1460818

Kevin B. Hendricks

Wilfrid Laurier University - School of Business & Economics ( email )

Waterloo, Ontario N2L 3C5
CANADA
519 884 0710 x3970 (Phone)
519 884 0201 (Fax)

Vinod R. Singhal (Contact Author)

Georgia Institute of Technology - Scheller College of Business ( email )

800 West Peachtree St.
Atlanta, GA 30308
United States

Rongrong Zhang

Georgia Southern University ( email )

statesboro, GA 30460
United States

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