The Effect of Labor

Violations on Firm LongTerm Stock Performance

and Profitability

Impact

Event

Labor
Sustainabil
ity

CSR

CSR and Its Successors

Five Cs: Conviction, Commitment, Communication, Consistency, and Credibility. (Kotler and Lee,
2005)
Corporate social performance (CSP) approach: what is really important is what organizations are able
to accomplish with regard to specifying the nature of their responsibilities, adopting a particular
philosophy of responsiveness and identifying the stakeholder
issues to which these responsibilities
pertain. (Masuku, 2008)
Three dimensions of Sustainability:
environmental, social, and economic. (Kumar et
al. 2012)

Critical Management Studies

CRITICALmanagementstudies(CMS)hasemergedasamovementthatquestionstheauthorityand
relevanceofmainstreamthinkingandpractice.
TheriseofCMSasacontemporaryphenomenonhasbeenlinkedbysomecommentatorswiththepublication
oftheeditedcollectionofthesamename(AlvessonandWillmott,1992).
CriticalandLaborprocesstheorieschallengetheneutralityofmanagementknowledge
Performativitycustomerscareaboutwhatis
goingonintheorganization,notjustaboutits
finalproduct.
AgencyandIdentity

Labor Standards in the Literature

Locke et al. (2007) Does Monitoring Improve Labor Standards? Lessons from Nike:
- Voluntary/private monitoring systems raise suspicion.
Are those performing the audits to be trusted?
Diversity of codes and monitoring schemes.
Locke et al. (2012) Production Goes Global, Standards Stay Local: Private Labor Regulation in
the Global Electronics Industry:
Level of compliance with labor standards in the global electronics industry.
- Analyzing audit reports across national settings.
- Commoditized vs. specialized products.

Labor Violations
The Department of Labor (DOL) administers and enforces more than 180
federal laws.
Wage & Hour Division
Workplace Safety & Health
Employee Benefit Security
Unions & Their Members
Employee Protection
Uniformed Services Employment and Reemployment
Rights Act
The Family and Medical Leave Act

Event Study Methodology

MacKinlay(1997):"usingfinancialmarketdata"to"measuretheimpactofaspecificeventonthevalueofafirm."
The economic impact of an event and announcement effect will be equal only if the event was
thought impossible prior to the announcement (Malatesta and Thompson (1984)).

Partial anticipation and slow adjustment of stock prices to new information are likely in the case of
supply chain disruptions. (Hendricks and Singhal, 2003)

- Managers and investors more likely to trust estimates of economic impact based over long
horizons.
- Time pattern of abnormal stock price behavior in terms of when it starts, how long it lasts,
and whether firms recover quickly from it.

Hypotheses
H1: Labor violation announcements will cause the respective firm to experience negative abnormal
stock price performance during the post-announcement period.
H2: This negative performance shock will be greater for companies located closer to the endconsumer on the supply chain spectrum.
H3: Over a longer time horizon, if the firm takes steps to resolve the conflict, it will recover more
quickly than if it does not address the issue or acts defensively.
H4: The overall financial impact for the company will be greater for announcements that
experience greater social media reverberations.

Data Collection

Challenges
Difficult to isolate the effect of the announcement.
Not just prior experience should serve as a benchmark, but also reputation of the firm itself
and of the industry as a whole.
What explanatory power does the stakeholder theory have over other managerial
approaches?
Announcements are sometimes ambiguous.

Further Research Questions

How does the effect of the announcement differ across national borders?
What are some other contributing factors (firm size, brand image, etc.)?
Given the massive consolidation trend in recent years,
is abnormal performance more likely to be observed
on the firm level as a whole, or just the brand level?
Is the announcement more likely to be detrimental if
it involves names/images of humans, as opposed to
Companies?

Thank you!