Economic Links and the Wealth Effects of Layoff Announcement Along the Supply Chain

Posted: 15 Jan 2019 Last revised: 9 May 2019

See all articles by Michel Magnan

Michel Magnan

Concordia University - Department of Accountancy

Yetaotao Qiu

John Molson School of Business, Concordia University

Date Written: January 1, 2019

Abstract

This paper examines whether suppliers suffer from information externalities when their major customers make layoff announcements. We find suppliers, on average, experience a negative stock price reaction around their major customers’ layoff announcements. Furthermore, the negative price effect is exacerbated when the industry rivals of layoff-announcing customers also suffer from negative intra-industry contagion effects, indicating that the interaction of vertical and horizontal effects can have an impact on the magnitude of supply chain information externalities. Additionally, our results show that the supply chain spillover effects are asymmetric, with only “bad news” layoff announcements causing significant value implications for suppliers, but not “good news” announcements. Supplier firms also reduce their investments and sales dependence on layoff-announcing customers and experience a higher profit margins and investment profitability in the subsequent years.

Keywords: Information externality, Corporate layoffs, Supply chain relations

JEL Classification: J63, G14

Suggested Citation

Magnan, Michel and Qiu, Yetaotao, Economic Links and the Wealth Effects of Layoff Announcement Along the Supply Chain (January 1, 2019). 2019 Canadian Academic Accounting Association (CAAA) Annual Conference. Available at SSRN: https://ssrn.com/abstract=3315865 or http://dx.doi.org/10.2139/ssrn.3315865

Michel Magnan

Concordia University - Department of Accountancy ( email )

Montreal, Quebec H3G 1M8
Canada

Yetaotao Qiu (Contact Author)

John Molson School of Business, Concordia University ( email )

Montreal
Canada

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