Contagious Stock Price Crashes Along the Supply Chain

Buhui Qiu, Fangming Xu, Andy C. L. Yeung*, Cheng (Colin) Zeng

*Corresponding author for this work

Research output: Contribution to journalArticle (Academic Journal)peer-review

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Abstract

Although risk management is widely regarded as an important topic within supply chain (SC) management, little research studies the contagious effect of risk factors along SC networks. By using stock price crashes as an indicator of risk factors, our study reveals that stock price crash risk can be transmitted from major customers to suppliers with a delay of up to two weeks. We show that the information opacity of suppliers is a factor that potentially contributes to the delayed crash contagion. We also find that the contagion effect becomes more pronounced as the importance of customers increases. Moreover, customer operational incidents have a more pronounced contagion effect on suppliers compared to customer financial incidents. Additionally, we find that suppliers tend to take strategic measures following the stock price crashes of their major customers, including diversifying their customer base, enhancing operational efficiency, and improving product quality. However, among these actions, only the improvement of operational efficiency effectively mitigates the adverse impact of customer stock price crashes on suppliers. Overall, our findings provide new insight into the distribution of risk factors across SC networks, highlighting the critical role of operational improvements in bolstering the resilience of firms to SC risks.
Original languageEnglish
Number of pages21
JournalProduction and Operations Management
Early online date2 May 2024
DOIs
Publication statusE-pub ahead of print - 2 May 2024

Bibliographical note

Publisher Copyright:
© The Author(s) 2024.

Structured keywords

  • AF Corporate Finance
  • MGMT Operations and Management Science

Keywords

  • Supply chain risk
  • contagion effects
  • stock price crashes
  • operational incidents
  • financial incidents

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