No full-text available
To read the full-text of this research,
you can request a copy directly from the author.
Financial performance of supply chains after disruptions: An event study
Abstract
Purpose – This empirical analysis aims to shed light on the financial implications of supply chain design and in particular on the differences between pull- and push-type designs. The focus is on risk exposure to difficult to foresee supply disruptions, like those resulting from natural and man-made disasters. Design/methodology/approach – The event study framework is applied to the stock performance of four major personal computer (PC) producers after the 1999 earthquake in Taiwan and the computer memory price increases that ensued. Findings – It is shown that investors associate pull-type supply chains for PCs with lower profitability after abrupt component price increases. A parallel analysis of push-type producer stock returns does not show similar results. Furthermore, in-depth analysis of Dell Computer reveals that after the catastrophe-induced disruption the onset of losses to this major pull-type PC producer was very fast. Practical implications – Without condemning pull-type PC supply chains, earthquake-induced disruptions pose risks that require management attention. Originality/value – This empirical study provides evidence linking supply chain strategy and company risk structure.
... Supply chain disruptions are known to have a negative effect on the firms' financial performance and shareholder wealth (Hendricks and Singhal, 2003, 2005a, 2005bPapadakis, 2006). While some supply chain disruptions might be unavoidable (Craighead et al., 2007), firms can try to limit their risk of occurrence or severity. ...
... Our results are particularly relevant, as it is difficult for practitioners to quantify the costs of supply disruptions (Macdonald and Corsi, 2013). Further, our study extends the literature on disruption impacts, as we adopt the supplier as unit of analysis and examine buyer-experienced performance impacts, while most studies focus on the performance impacts with the buying firm as unit of analysis (e.g., Bode and Macdonald, 2017;Singhal, 2005a, 2005b;Macdonald and Corsi, 2013;Papadakis, 2006). ...
... Operational performance is often measured based on the dimensions of quality, cost, delivery, flexibility, product innovativeness, and customer satisfaction (Kauppi et al., 2016;Zhao, Huo, Sun & Zhao, 2013). Firm performance is mainly related to nvestmentnal aspects such as corporate finance (Papadakis, 2006;Chen, 2018), market expansion and market preservation (Klassen & Vereecke, 2012) (see Table 4, Table 5, and Table 6 for specific risks and performance measures corresponding to each paper). ...
... Only five of the studies focused on disruption risk (Papadakis, 2006;Wilson, 2007;Qiang & Nagurney, 2012;Bueno-Solano & Cedillo-Campos, 2014;Giri & Sarker, 2017), while the remainder mainly focused on a single subtype of operational risk. ...
Purpose: In the supply chain risk management literature, many reviews have been conducted to provide a full understanding of various aspects such as role of simulation and optimization methods in risk management, classification of risks, classification of risk mitigation strategies, and supply chain risk definitions. However, a structured review of risk impact on performance in supply chains is still lacking. Such a review is useful since the literature implies that maintaining and improving performance in risk environments are critically important to the business survival of firms in supply chains.Design/methodology/approach: This review synthesizes and analyses 48 papers published in journals from 2006 to 2020 based on the following criteria: risk type, impact mechanisms of risk (i.e., direct and indirect), performance, research method, research setting, and risk mitigation strategy.Findings: The findings conclude that the impact of risk on performance is complicated and influenced by many factors namely antecedents, mediators, and moderators.Originality/value: This review contributes to the theoretical development of SCRM research through the analysis of SCR impact mechanisms, and indicate gaps of knowledge and future research opportunities. Moreover, it helps managers to devise appropriate risk mitigation strategies thanks to a full understanding of risk impact mechanisms.
... For instance, political risks (Beaulieu et al., 2006) and natural calamities; avalanche, flood, fire, epidemic & earthquake (Lamb, 1998;Carter & Simkins, 2004;Ramjah, 2013). Papadakis (2006) has concluded that the earthquake generated negative abnormal returns. This study examines whether this piece of findings also valid to our stock market. ...
... Earthquake is an unanticipated and unpredictable event. Event analysis conducted by Papadakis (2006) concerns the output of the four stocks (i.e. PC manufacturers-Dell computer, Gateway, Compaq and IBM) after the September 21, 1999 Taiwan earthquake. ...
Several factors influence the stock market; they trigger market over-or under-reactions. The paper aims to identify the effect of a major catastrophic event on stock returns. For this, daily data of stock market indices was used with a total of 210 observations and the effect of catastrophic event, Nepal Earthquake 2015, was tested using the method of event analysis for different event windows. The catastrophic event did not affect stock returns significantly and was resilient to earthquake-induced shocks. The event window (+2, +10) shows the higher and positive abnormal returns which depicts that the market has recovered from the shock in as many as three days. The study shows that stock market in Nepal is semi-strongly inefficient.
... Collaboration in the SC is influenced by its structure, and because collaboration is difficult to implement, many times the echelons of the SC suffer from a lack of coordination mechanisms with several operative consequences even if it is demonstrated that coordination enhances the performances of both the supplier and the Retailer (Sheu et al., 2006). It is Persona et al., 2005Henning, 2009Takahashi & Nakamura, 2004Elofson et al., 2007Masuchun et al, 2004Bowersox et al., 1999Lehtonen, 1998Bhaskaran, 1998Olhager, 2003Chiang et al., 2003Hameri & Nikkola, 2001Huang et al., 2006Kwon et al., 2007Kulp et al., 2004Sheu et al., 2006Papadakis, 2006Umeda & Zhang, 2006Malhotra et al., 2005Moyaux et al., 2007Beaudoin et al., 2007Power & Singh, 2007Wang & Shihua, 2004Jung et al, 2008Yang et al, 2007He & Liu, 2003Tribowski et al., 2009Jiang et al., 2010Lee et al., 2006Hof fman, 2006Pereira et al., 2009Pattersen et al., 2009 important to underline that in the past, the main elements to achieve collaboration were put up as evidence. Indeed, based on a survey conducted in the industrial districts of northern Taiwan, it is possible to understand that the position in the network and the firm sizes are key factors-in terms of business success-for coordination and consequently, for the management of the SC (Wang et al., 2004). ...
... The balancing between the planning for Manufacturing To Order (MTO) and for Manufacturing To Stock (MTS) is one of these; in SCs, they contribute to create different production variabilities and variances in the amount of safety stock required to satisfy a fixed service level (Ma et al., 2004). Moreover, there is the demand respond tactic (i.e., pull), which can lead to lower risk exposure after a sales or production disruption (Papadakis, 2006). Therefore, in general, it is possible to say that the direct market strategy improves reliability in marketplace service, but it requires integration among partners. ...
The uncertainty in the supply chains (SCs) for manufacturing and services firms is going to be, over the coming decades, more important for the companies that are called to compete in a new globalized economy. Risky situations for manufacturing are considered in trying to individuate the optimal positioning of the order penetration point (OPP). It aims at defining the best level of information of the client’s order going back through the several supply chain (SC) phases, i.e. engineering, procurement, production and distribution. This work aims at defining a system dynamics model to assess competitiveness coming from the positioning of the order in different SC locations. A Taguchi analysis has been implemented to create a decision map for identifying possible strategic decisions under different scenarios and with alternatives for order location in the SC levels. Centralized and decentralized strategies for SC integration are discussed. In the model proposed, the location of OPP is influenced by the demand variation, production time, stock-outs and stock amount. Results of this research are as follows: (i) customer-oriented strategies are preferable under high volatility of demand, (ii) production-focused strategies are suggested when the probability of stock-outs is high, (iii) no specific location is preferable if a centralized control architecture is implemented, (iv) centralization requires cooperation among partners to achieve the SC optimum point, (v) the producer must not prefer the OPP location at the Retailer level when the general strategy is focused on a decentralized approach.
... Azuma, Dahan, and Doh (2023) conducted a comprehensive study to investigate how shareholders responded to corporate philanthropic disaster responses following the 2016 Kumamoto earthquakes in Japan and found that cash donations had a positive impact on shareholder reactions, likely because they served as a signal of the firm's optimistic future financial prospects. The financial implications of supply chain design in the context of natural disasters were explored by Papadakis (2006), who found that pull-type supply chains, when faced with component price increases due to natural disasters, are linked to reduced profitability. His findings emphasize the risk exposure inherent in certain supply chain configurations and highlight the need for robust disaster preparedness and risk management strategies in supply chain planning. ...
... This requires supply chain managers to always include risk factors when making supply chain decisions, be it for strategic, tactical, as well as operational decisions. In response, researchers are now revisiting the concept of supply chain vulnerability (Juttner, 2005;Papadakis, 2006;Wagner & Neshat, 2012). ...
... In addition, due to high costs related to inventory holding, many firms adopt lean practices for keeping minimum inventory. This renders firms more susceptible to operational risk and the ripple effect along the SC (Papadakis, 2006 hypothesized that human-made risk leads to supply risk and demand risk, natural risk leads to demand risk, and supply risk and demand risk cause operational risk; the results do not support these hypotheses. A possible explanation for these unsupported hypotheses is that the data of this study are only obtained from construction firms in Vietnam. ...
Purpose
The present study is performed to identify the propagation mechanism of the ripple effect as well as examine the simultaneous impact of risks on supply chain (SC) performance.
Design/methodology/approach
A theoretical framework with many hypotheses regarding the relationships between SC risk types and performance is established. The data are collected from a large-scale survey supported by a project of the Japanese government to promote sustainable socioeconomic development for the Association of Southeast Asian Nations (ASEAN) region, with the participation of 207 firms. Structural equation modeling (SEM) is used to test the hypotheses of the theoretical framework.
Findings
It is indicated that human-made risk causes operational risk, while natural risk causes both supply risk and operational risk. Furthermore, the impacts of human-made risk and natural risk on performance are amplified through operational risk.
Research limitations/implications
This study is one of the first attempts that identifies the propagation mechanism of the ripple effect and examines the simultaneous impact of risks on performance in construction SCs.
Originality/value
Although many studies on risk management in construction SCs have been carried out, they mainly focus on risk identification or quantification of risk impact. It is observed that research on the ripple effect of disruptions has been very scarce.
... Exchange rate risk significantly affects firms that are involved in global supply chain operations, since exchange rate variations may directly influence after-tax profits, supplier selection, market development, and other related decisions. Exchange rate fluctuations may also cause increases in procurement costs of raw materials or input, as well as decrease in the price of firms' products (Papadakis, 2006;Christopher and Holweg, 2011). ...
Supply Chain Finance is as a portfolio of financing and risk mitigation practices and techniques to optimize the management of the working capital and liquidity invested in supply chain processes and transactions. SCF techniques existing on the market can be divided into three categories: receivable purchase, advanced payable, and loans. These financing solutions are significantly ‘eventdriven’, since they aim at satisfying the financial requirements of buyers and sellers, that are triggered by purchase orders, invoices, receivables, other claims, and related pre-shipment and post-shipment processes along the increasingly complex supply chains in which they are involved. Along the way from raw material procurement to production, sales and end-users, several source of risks can threaten the possibility of completing the transactions and the regular functioning of supply chain finance. Digitization can help in managing these risks, facilitating the control of the factors underlying them.
... However, the last decade witnessed a widespread change in the complexity of GVCs, as well as the growing importance of corporate social responsibility in their design and management. The literature attributes such changes to institutional and macroeconomic factors, which include, among others, growing protectionism (Juergensen et al., 2020), sustainability (Campling & Havice, 2019;Pananond et al., 2020), technological advances (for example, additive manufacturing in Hannibal and Knight (2018), big data (Strange and Zucchella (2017), and disruptive events with a low probability of occurrence but with a high impact (such as the 2008 global crisis (Cattaneo et al., 2010), the earthquake in Taiwan in 1999(Papadakis, 2006). The impact of the COVID-19 pandemic is an example of a disruptive event that has reverberated shocks through GVCs (Ali et al., 2022;Mostafiz et al., 2022;Pla-Barber et al., 2021;Verbeke, 2020). ...
The COVID-19 pandemic emphasised the global value chains (GVCs) debate by focussing on whether gains from GVC participation outweigh firms associated risks of demand and supply shocks amid rising protectionism. This paper bridges the gap between the international trade and management literature by examining the impact of COVID-19 on Commonwealth countries, an area that has received scant attention in academic literature. Using the Eora database, we simulate scenarios to examine Commonwealth countries’ participation in GVCs post-COVID. We draw on the transaction cost economics (TCE) theory to develop a framework that investigates whether growing protectionism, associated with reshoring, decoupling and nearshoring, could potentially affect the constellation and participation of Commonwealth countries in GVCs post-COVID. Results show that trade protectionism is likely to impact the supply chains and lead to GVC reconfiguration, which could offer opportunities for the Commonwealth countries and firms to potentially gain following the geographical redistribution of suppliers.
... In supply chain literature, researchers have demonstrated a link between events associated with supply chains and stock market performance. Hendricks and Singhal (2005) use stock market reaction to study the effect of supply chain glitches; Papadakis (2006) investigates financial performance following supply chain disruptions; Mitra and Singhal (2008) investigate how involvement in supply chain integration through industry exchanges are perceived by investors; and the market perception of the impact of the appointment of new supply chain and operations management executives was investigated by Hendricks, Hora, and Singhal (forthcoming). Together, these studies indicate the efficacy and power of event studies as applied to the operations and supply chain discipline and this gives us confidence that the method is also appropriate to investigate the impact of SCSIs on the market's perception of the value of Wal-Mart's suppliers. ...
Many studies have shown that sustainability initiatives within individual firms increase their financial performance; however, the impact on the firms' suppliers is not clear. We conduct an event study to investigate whether supply chain sustainability initiatives (SCSIs) of a buying firm are related to suppliers' performance. The analysis is based on the shareholder value effects (as measured by stock market reaction reflected by abnormal returns) on Wal-Mart's direct suppliers associated with Wal-Mart's announcements SCSIs. Wal-Mart is renowned for its ability to organize the supplier base and optimizing supply chain settings and it has implemented many SCSIs. We find a significant positive relationship between suppliers' performance and SCSIs enforced by the buying firm and this expands our understanding of sustainability benefits from firms to supply chain partners while providing support for collaboration on sustainability between supply chain actors.
... Humanitarian literature has focused on several traditional supply chain management topics such as inventory planning (Davis et al., 2013), supply chain coordination (Balcik et al., 2010;Heaslip et al., 2012;Opdyke et al., 2016), and information management (Altay and Labonte, 2014) in the new context of post-disaster relief, where a greater number of entities such as governments, military, non-governmental organizations (NGOs), and private companies are engaged. Operations and supply chain management (OSCM) literature has empirically examined the impacts of disasters on disaster-stricken firms' internal operations, the dispersion through supply chain network, and mitigation strategies (Hendricks et al., 2019;Altay and Ramirez, 2010;Papadakis, 2006;Sodhi and Tang, 2014;Mizgier et al., 2013Mizgier et al., , 2015Wagner et al., 2014). However, there is little empirical evidence on whether and how natural disasters might affect disaster-stricken firms' industry peers (i.e., suppliers, customers, and competitors of the focal firm) located in other areas, especially in other countries. ...
It is unclear how a natural disaster such as earthquake affects disaster-stricken firms’ industry peers located in other countries. While those industry peers might benefit from the disaster due to the competitive advantage gained over the disaster-stricken firms (positive competitive effect), they might also suffer from the disaster due to their linkages to the disaster-stricken firms (negative contagion effect). Based on a natural experiment in which a series of earthquakes struck Kumamoto, Japan’s Silicon Island, in April 2016, we find that the earthquakes have a negative impact on the stock returns of the semiconductor manufacturers located in China, suggesting that the contagion effect overweighs the competitive effect. Moreover, the negative impact is more pronounced for firms with supply chain connections with Japanese firms. However, we also find a positive impact among Chinese firms with high inventory turnover and customer concentration. Overall, our research reveals the dynamic effects of a natural disaster across national borders, urging firms to pay attention to the negative contagion effect through supply chain linkages and the positive competitive effect resulting from better operational efficiency.
... H1a: Individualism 3 supply chain integration fi flexibility performance Negative Unsupported H1b: Individualism 3 supply chain integration fi financial performance Negative Supported H2a: Uncertainty avoidance 3 supply chain integration fi flexibility performance Positive Supported H2b: Uncertainty avoidance 3 supply chain integration fi financial performance Negative Supported , risks management can have the opposite effect on financial performance. On the one hand, effective risk management prevents the performance decline caused by risk (Papadakis, 2006). On the other hand, the application of massive approaches dealing with uncertainties increases the cost of risk management, possibly impeding financial performance (Ritchie and Brindley, 2007). ...
Purpose
With increasing globalization, supply chain management in various national cultures requires understanding. This study aims to examine the moderating effects of individualistic and uncertainty avoidance cultures on the relationship between supply chain integration (SCI) and different dimensions of firm performance (i.e. flexibility and financial).
Design/methodology/approach
This study collected 124 pairwise survey data from supply chain and senior managers of retail firms in 35 countries. Hofstede’s national culture index was used to examine the moderating effects. Structural equation modeling and regression analysis were used to test the model.
Findings
Results corroborate that in a higher uncertainty avoidance culture, the positive influence of SCI on flexibility performance is stronger, but that on financial performance is weaker. By contrast, individualism reduces the positive influence of SCI on financial performance, but does not moderate that on flexibility performance.
Originality/value
This paper proposes a contingent model for SCI-performance relationships by integrating the relational view and the national cultural perspective. Critical national cultural dimensions moderate the effects of SCI on flexibility and financial performance. Therefore, operational managers should design differential SCI strategies in various cultural settings.
... Exchange rate risk significantly affects firms that are involved in global supply chain operations, since exchange rate variations may directly influence after-tax profits, supplier selection, market development, and other related decisions. Exchange rate fluctuations may also cause increases in procurement costs of raw materials or input, as well as decrease in the price of firms' products (Papadakis, 2006;Christopher and Holweg, 2011). ...
RISK MANAGEMENT MAGAZINE Anno 15, numero 3 Settembre-Dicembre 2020
... Finally, producing new knowledge on a given type of risk is definitely the key focus of interest among academic researchers in the field of organizational risk management. More specifically, the concern is with: ecological risks (Beer, 2006;Hoffman, 2005;Stead and Stead, 2004;Willis et al., 2004;Power and McCarty, 2002), project risks (Chapman and Ward, 2003;Pich et al., 2002;Barki et al., 2001;Ward, 1999), IT/IS risks (Tafti, 2005;Bhattacharya et al., 2003;Suh and Han, 2003;Blakley, 2001;Finne, 2000), and supply-chain risks (Handfield et al., 2006;Papadakis, 2006;Bensoussan, 2006;Johnson, 2006;Juttner, 2005). ...
Organizations, would they be individual companies or large multi-firm networks, face a wide variety of potential risks requiring dedicated keen management. It all the better applies to supply-chains as risk, related to both physical and information flows, pervades the whole logistics network and has acquired a new and growing security dimension since 9/11. More specifically, as they are now under the permanent threat of terrorism, and because offering sufficient security levels is bound to become a necessary condition for global supply-chain membership, seaports need to adjust their risk management strategy and processes accordingly. In such a context, this paper aims at describing the project of a decision-support system, dedicated to container transit security-wise decision making and which features an expert-system architecture.
... Hale and Moberg (2005) suggested density (quantity and geographical spacing) of nodes within a supply chain as a determinant of supply chain resilience. Papadakis (2006) supported the concept of density as an SCRES determinant while providing the practical case study, which is about computer component manufacturers in Taiwan impacted by the 1999 earthquake. Craighead et al. (2007) highlighted complexity, which relates both to the number of nodes in a supply chain and to the interconnections between the nodes. ...
... Hale and Moberg (2005) suggested density (quantity and geographical spacing) of nodes within a supply chain as a determinant of supply chain resilience. Papadakis (2006) supported the concept of density as an SCRES determinant while providing the practical case study, which is about computer component manufacturers in Taiwan impacted by the 1999 earthquake. Craighead et al. (2007) highlighted complexity, which relates both to the number of nodes in a supply chain and to the interconnections between the nodes. ...
Infrastructure are becoming increasingly interconnected in the modern society. Failure of any type of infrastructure due to natural and/or man-made disasters may impact operational capacities of interdependent infrastructure within its supply chain and result in economic and social losses for the associated communities due to disruption in business continuity. Hence, the decision-makers for an infrastructure should consider the need to enhance not only the post-disaster operational capacities of the infrastructure but also that of its interdependent infrastructure. A large number of studies on post-disaster capacity developments for infrastructure systems and associated communities have been conducted for decades. However, a significantly less attention has been paid to (1) investigating disaster impact propagation due to interdependency of infrastructure networks including civil, civic, social, financial, educational, environmental, and cyber infrastructure, diverse stakeholders, and entities in multiple tiers of supply chain, (2) incorporating impacts of upstream infrastructure’s existing operational capabilities (i.e. business continuity) onto downstream infrastructure’ post-disaster capacity development plans, and (3) developing strategies and effective decision-making rules for infrastructure capacity development considering criticalities of its internal and external interdependencies with other infrastructure systems. This research presents a novel methodology for enhancing the resilience of interdependent communities and infrastructure through systematic and strategic ex-ante capacity development of the entities on its supply chain to maintain the business continuity in a post-disaster environment. To accomplish this objective, this study (1) investigated the nature of interdependencies for the different types of infrastructure based on historical case studies, (2) developed a platform for infrastructure supply chain that incorporates internal and external components of various infrastructure at different tiers, (3) developed a methodology to evaluate criticalities and interdependencies of the internal components and external entities in the infrastructure supply chain, and (4) developed an integrated decision support system to select best capacity development strategies by conforming the decision-makers’ customized risk appetite. With these developed platform, methodology, and decision support system, the decision-maker would be able to evaluate strategies that will enhance the resilience of the affected communities and infrastructure. This research, therefore, contributes to the body of knowledge and practice by (1) adding a new dimension to the concept of seven infrastructure layers by systematically analyzing criticalities and interdependencies of both upstream and downstream entities at different tiers, (2) advancing analysis methods of infrastructure interdependencies by constructing an infrastructure supply chain with respect to seven-layer classifications of infrastructure systems, (3) modeling disaster impact propagations by capturing the impact flows through different types of infrastructure at different tiers, and (4) developing a unified methodology to evaluate the post-disaster capacity needs of infrastructure supply chains by flexibly and proactively reflecting the decision-makers customized risk appetites with the different levels of details during the decision-making process.
... No nation can go high without quality secondary education. Basically, primary education is concerned with the transfer of knowledge from the teacher to the taught (Olalere, 2013). But secondary education involves analysis, synthesis and the transformation of information into knowledge. ...
The medical sector has entered an epoch of rapid innovation and strengthened competition that demands more creativity. That rapidly changing environment demand more flexibility for the operations. Although, various studies are available on the effects of multiple approaches on operational flexibility still JIT, TQM, and SCM never have been verified in the same study. This is empirically varification, a questionnaire has been distributed by convenience sampling in the medical sector of Jordan. Total 318 responses received and SPSS have been applied for multiple regression analysis. It has found that all three approaches have positive effects on operational flexibility but very minor even no approach has significant effects. This study is unique because it applies three diversified approaches in the same study and findings are unique. It is recommended for all managers of a medical sector that JIT, TQM, and SCM are not beneficial for operational flexibility for developing countries due to lack of resources, technology, and education. This study will help the researches that more studies need to verify for Jordan hospitals. Moreover, future studies can be done to identify the reasons behind these unique findings.
... This is due to fact that denser supply networks are vulnerable to HILP disruption risks [36]. For example, 1999s Taiwan earthquake ended up having a significant effect on the entire global PC supply chain, because of the high concentration of computer component manufacturers in Hsinchu, Taiwan [47]. This example shows that the selection of a large number of suppliers from each region is a vulnerable multi-sourcing strategy, hence, this paper proposed supply density-based approach to tackle this problem. ...
Modern supply chains are vulnerable to high impact, low probability disruption risks. A supply chain usually operates in such a network of entities where the resilience of one supplier is critical to overall supply chain resilience. Therefore, resilient planning is a key strategic requirement in supplier selection decisions for a competitive supply chain. The aim of this research is to develop quantitative resilient criteria for supplier selection and order allocation in a fuzzy environment. To serve the purpose, a possibilistic fuzzy multi-objective approach was proposed and an interactive fuzzy optimization solution methodology was developed. Using the proposed approach, organizations can tradeoff between cost and resilience in supply networks. The approach is illustrated using a supply chain case from a garments manufacturing company.
... The concept of an event in SCM is admittedly confusing and open to different interpretations, for example, as an abstract disruptive event [54], risk occurrence [55], extreme occurrence, catastrophe [56], or other similar definitions [57][58][59]. However, in the interdisciplinary context of EP and SCM, the term attains the meaning of a data object containing information about a state change in a logistic process. ...
Increasing supply chain complexity poses new challenges to managers. On the other hand, evolving information and communication technology offers ample opportunity for more reliable supply chain management practices. Event processing has established itself in many applications in logistics. Although the topic has enjoyed increasing popularity, there is no study taking stock of prior developments and guiding future research. Therefore, a systematic literature review on the topic of event processing in supply chain management from 2005 until the present is undertaken. Extant literature is synthesized and analyzed from technological and supply chain management perspectives to inform scholars and practitioners of existing field developments. Additionally, to guide future scholarly endeavors, a research agenda is derived from promising topics raised in papers and unfulfilled practical requirements. We find that current solutions primarily focus on a limited number of supply chain core processes and a restricted number of supply chain actors. The majority of publications focused on time-temperature sensitive products. Additionally, the domination of road transportation can be observed, while other modes of transport are often ignored in solution implementations. Decision support in terms of object traceability within the supply chain is found in most articles. RFID, typically accompanied by the Electronic Product Code Information Services standard, is the dominant enabling technology. Future research should focus on the topics of standardization, granularity, data sources, and cooperation. Moreover, holistic event processing supported by big data and machine learning techniques could create interfaces with other legacy business intelligence applications. Another promising area includes the exploration of new technologies, i.e. IoT, to enable new smart solutions.
... In this case, financial performance cannot be ensured. SCRM practices can help reduce the loss through risk prevention and control, thereby leading to superior financial performance (Papadakis, 2006;Ritchie and Brindley, 2007). Hence, we propose the following hypothesis: ...
Purpose
The purpose of this paper is to scrutinize the performance effects of supply chain risk management (SCRM). Besides financial performance, two aspects of operational performance are examined: operational efficiency and flexibility. Moreover, the authors explore the moderating role of supplier integration in the relationship between SCRM and operational performance.
Design/methodology/approach
A survey-based methodology was adopted. Based on the data from an international survey, this study applied the structural equation modeling and latent moderated structural equations approach to test the hypotheses.
Findings
The results indicate that SCRM positively influences both operational efficiency and flexibility, and has an indirect effect on financial performance. In addition, supplier integration enhances the impact of SCRM on operational flexibility, but does not moderate the relationship between SCRM and operational efficiency.
Originality/value
This study extends the existing literature by providing a comprehensive analysis of the performance effects of SCRM. It also provides managerial insights on both risk management and supplier integration.
... After controlling for these factors, the remaining unexplained variation is considered to be the abnormal return that is connected to other influences -in this case, the influence of the events under study. Event study methodology has been used to investigate many significant events that are of interest to the stock market and consumers, such as recalls of food (Salin and Hooker 2001) or toys (Wood et al. 2017), delays in product introductions (Hendricks and Singhal 2008), and supply chain disruptions (Papadakis 2006). ...
The automotive sector must meet strict regulations to increase mobility while reducing emissions to demonstrate environmental stewardship. Trust in the promise of a sustainable Fahrvergnügen was broken with recent scandals like Dieselgate denting the confidence of regulators and consumers. Overpromising on sustainable innovative technology resulted in unethical behaviour, deceit, and failure to meet promised standards. We consider to what extent societal disapproval was evident in the stock market reaction to these events.
We sampled 41 announcements (1984 to 2016) and observed a mean stock market reaction of -1.01%. There was no difference in the stock reaction in firms failing governmental vs. voluntary standards and more negative reactions for events following Dieselgate or when compensation was offered. The severity of the reaction to unethical misuse of environmental credentials should encourage maintaining promised environmental performances as a macromarketing strategy.
... In the larger context, the financial crisis could be described as a disruptive event that had a considerable impact on companies' financial performance, and also on costs and performance in the field of logistics. Papadakis (2006) showed in his event study that the configuration of a supply chainparticularly pull versus push approachescan considerably affect the financial and SC performance of firms within the same industry (28ff.). However, it should be mentioned that the context was somewhat different than in this research: the disruptive event he refers to is the 1999 earthquake in Taiwan. ...
This article analyses the market dynamics between shippers in the manufacturing sector and logistics service providers (LSPs) in Finland and Switzerland, focusing on factors that are characteristic of the demand and supply sides of logistics markets such as performance indicators, financial ratios and relevant macroeconomic indicators. The development of shippers’ logistics costs over a period of ten years is analysed as a proxy for cost savings. This is mirrored against the development of the LSPs’ financial performance. The share of logistics costs in the turnover of Finnish shippers is consistently higher than that of their Swiss peers, whereas Finnish LSPs perform financially better than their Swiss peers. This implies that Finnish and Swiss logistics markets differ in terms of market power and interdependence between shippers and LSPs. The results indicate that the sub-regional interdependence and market power of LSPs, caused by a lack of competition, explain some of the differences in logistics costs.
... This is an interesting work which incorporated the concept of risk aversion in the supplier selection process and its implications upon the manufacturing environment; supply chain environment and general environment. Papadakis (2003Papadakis ( , 2006 introduced the notion that after a short period of supply disruption (the so-called event window) the normal stock behavior does not take place as it is reasonable to assume that the disruption may impact the supply chain and hence the company's stock prices. However, their study calculated the supply chain disruption impact might vary between the pull and push systems. ...
Purpose
Supply chain risk (SCR) has increasingly attracted academic and corporate interest; however, the SCR debate in academic literature is rather limited to case- and location-specific studies. Hence, the purpose of this paper is to utilize a systematic literature review (SLR) to explore the SCR research trends and gaps within the management literature.
Design/methodology/approach
To achieve the research objective an SLR, looking into 25 years since 1990, into supply chain risk management (SCRM) was conducted, which resulted in 114 papers.
Findings
While the SCRM literature is growing, results from the SLR identified limited organized understanding of what constitutes a holistic SCR process, and high reliance of particular categories for SCR, such as the high reliance on specific country settings (the USA and the UK); limited presence of cross competitive SCR process analysis and challenges in developing conceptual SCR frameworks.
Research limitations/implications
The SCR embeds categories of location, scope of supply chain, risk management tools, and the industry sectors involved. The search for related publications was mainly used from a wide range of coverage from accountancy to design in SCR; hence, although there is indication to specific industries, and foci of risk, this could be explored further.
Practical implications
This review of SCRM identifies various research gaps and directions for future research to develop theory and a practical understanding of SCR.
Originality/value
The current literature on SCR has been assessed based on its definition and utilization. The current paper bridges this gap by synthesizing the diverse academic journal papers into the categories based on the design continuum, relationship continuum, process continuum and economic continuum. In addition, it highlights the gaps in industry context, theoretical contribution, geographic location, and research methods applied and addresses the scope for further research.
... Bode and Wagner (2015) empirically found that the complexity of a supply chain, to include the horizontal and vertical complexity, can increase the frequency of disruptions and exacerbate them. Make-to-order supply chains may be more vulnerable to disruptions than make-to-forecast supply chains (Papadakis, 2006). Supply chain disruptions may be more severe for firms that are more geographically diverse or undertake a lot of outsourcing (Hendricks et al., 2009). ...
Supply chain risk management has recently seen extensive research efforts, but questions such as “How should a firm plan for each type of disruption?” and “What are the strategies and the total cost incurred by the firm if a disruption occurs?” continue to deserve attention. This chapter analyzes different disruption cases by considering the impacts of disruptions at a supplier, a firm’s warehouse, and at the firm’s production facility. The firm can prepare for each type of disruption by buying from an alternate supplier, holding more inventory, or holding inventory at a different warehouse. The Wagner-Whitin model is used to solve the optimal ordering strategy for each type of disruption. Since the type of disruption is uncertain, we assign probabilities for each disruption and use the Wagner-Whitin model to find the order policy that minimizes the firm’s expected cost.
... In general, companies which consider the factor of risk are more decisive and are able to make strategic decisions more quickly to enhance their overall level of performance (Kreiser et al., 2013). Despite the direct relationship between risk and return (Ritchie and Brindley, 2007), the occurrence of an unacceptable SCR would have a negative impact on not only the financial performance Singhal, 2003, 2005a;Papadakis, 2006) but also on operational continuity (Hendricks and Singhal, 2005b;Zhao et al., 2013). According to Jüttner and Ziengenbein (2009), risk means variation in supply chain outcomes. ...
This study seeks to comprehend the sources of substantial heterogeneity in the findings of board gender diversity and firm financial performance over the last two decades. We present an explanatory framework primarily ignored in previous review studies and chronologically review theoretical perspectives, analytical frameworks, measures, associations, and methodologies from 1996 to 2022. We employ a four-step systematic review methodology and a three-point thematic analysis framework. Our findings provide an explanatory framework outlining various channels that impede and facilitate the impact of board gender diversity on firms' financial outcomes. Our review reveals a plethora of descriptive studies that focused solely on one rather than multiple theoretical perspectives, which is a potential limitation and the root cause of heterogeneity in existing study findings. Heterogeneity is also linked with differences across studies in capturing firm performance, statistical inquiry, periods of studies, study samples, gender diversity of independent board members, family or non-family affiliations, omitted variable bias, the proportion of women directors on corporate boards, and economic contexts. Another reason for disparities in existing research is that gender diversity is not the only measure of diversity. Consequently, it is unclear when and which kind of board diversity measure should capture a firm's financial performance. We highlight the significance of the complexity perspective to address the limitation of measuring firm financial performance intently as a function of BGD from a singular theoretical perspective. Further, to better understand the antecedents of BGD, studies should use psychological and behavioural perspectives via an interview-based research design to encapsulate the team and individual attributes of BGD. Based upon our review, we suggest that future research should consider cultural differences to understand the antecedents of BGD on firm financial performance.
This study examines the past, present, and future of supply chain resilience (SCR) research in the context of COVID-19. Specifically, a total of 1,717 papers in the SCR field are classified into eleven thematic clusters, which are subsequently verified by a supervised machine learning approach. Each cluster is then analyzed within the context of COVID-19, leading to the identification of three associated capabilities (i.e., interconnectedness, transformability, and sharing) that firms should focus on to build a more resilient supply chain in the post-COVID world. The derived insights offer invaluable guidance not only for practicing managers, but also for scholars as they design their future research projects related to SCR for greatest impact.
Purpose
The purpose of this research work is to examine the financial effect of supply chain disruptions (SCDs) caused by coronavirus disease 2019 (COVID-19) and how the magnitude of such effects depends on event time and space that may moderate the signaling environment for shareholder behaviors during the pandemic.
Design/methodology/approach
This study analyses a sample of 206 SCD events attributed to COVID-19 made by 145 publicly traded firms headquartered in 21 countries for a period between 2020 and 2021. Change in shareholder value is estimated by employing a multi-country event study, followed by estimating the differential effect of SCDs due to the pandemic by event time and space.
Findings
On average, SCDs due to pandemic decrease shareholder value by −2.16%, which is similar to that of pre-pandemic SCDs (88 events for 2018–2019). This negative market reaction remains unchanged regardless of whether stringency measures of the firm's country become more severe. Supply-side disruptions like shutdowns result in a more negative stock market reaction than demand-side disruptions like price hikes. To shareholder value, firm's upstream or downstream position does not matter, but supply chain complexity serves as a positive signal.
Originality/value
This study provides the first empirical evidence on the financial impact of SCDs induced by COVID-19. Combining with signaling theory and event system theory, this study provides a new boundary condition that explains the impact mechanism of SCDs caused by the pandemic.
Supply chain disruptions pose significant risks to production systems. Unfortunately, the number of publications that study the real-life impacts of supply chain disruptions on production systems is extremely small, and the question of how these disruptions affect production systems has not been fully investigated. This research seeks to fill this gap using assembly-line data from a vehicle manufacturer in China. With these data, the authors estimated econometric models to assess the impacts of minor disruptions on production using two different metrics: daily output in terms of number of vehicles manufactured, and the disruption duration in minutes. Time-dependent effects were also considered to assess the extent to which the effects of disruptions on daily output and disruption duration change over time. The resulting models were analysed to identify which disruption factors are the most impactful in terms of daily output and disruption duration.
As far as the supply chain field is concerned, risk management has been an important topic of exploration. Starting with the definition of risks in supply chain finance, this chapter introduces the sources of risks in supply chain finance from the angles of supply chain operations and participant opportunism. Then, this chapter elaborates on how to establish a risk management system of intelligent supply chain finance for effectively curbing financial risks, and highlights the control role of intelligent credit in supply chain finance as well as the principles and management elements established by intelligent credit.
Advancing the literature on global value chains (GVCs), this study investigates the impact of the COVID-19 pandemic on immediate dynamics and long-term changes shaping the evolution of the garment GVC. We use a partially grounded, longitudinal approach to analyze data on seven cases of Bangladeshi garment manufacturers, supplemented by archival data on the garment industry. Based on our analysis, we theorize that the COVID-19 crisis has led to three types of dynamics (temporal, structural, and spatial) that contribute to GVC restructuring. Consistent with the paradox approach, we document two counter-tensions that influence the GVC in the long term: the push to disintegrate (i.e., permanently restructure) and the pull to integrate (i.e., preserve or strengthen the existing structural routines). We conceptualize the ultimate structure of the GVC as the alignment of a new balance of power and new capabilities of the GVC actors. Implications for theory, practice, and policy are discussed.
In terms of global transport issues, the port industry provides a major advantage by linking countries through seaborne trade. Nonetheless, natural hazards often threaten the profitability of seaport operations. Since most ports are situated in coastal areas, they are highly vulnerable to earthquakes and tsunamis. Earthquakes and tsunamis phenomena have been critically addressed at the operational planning stage in the maritime transport sector, where the disruption management department considers these phenomena as the major events that can lead to operation disruption. A new framework to study the destruction of earthquakes and tsunamis during seaport operations is established in this paper. For modeling the disruption analysis, a blend of various decision-making approaches such as Analytic Hierarchy Process (AHP) and Evidential Reasoning (ER), is used to model the disturbance analysis. Firstly, by using the AHP process, the disruption of earthquakes and tsunamis in seaport operations is defined and prioritized. Secondly, the disruption stages are assessed and synthesized by using the ER method. Penang Port is chosen as a case study to illustrate the applicability of the research model. This analysis model is capable of assisting seaport operators to perform self-assessment of earthquakes and tsunamis to improve the operational sustainability in a seaport.
Businesses are becoming more vulnerable to cyber threats and cyber‐based disruptions. This chapter provides a framework for analyzing the costs of cyber resilience and synthesizes the academic literature and industry‐specific information to provide a comprehensive initial set of cost and effectiveness estimates for many cyber resilience tactics. The framework is based on economic production theory, which reflects the ways businesses use cyber and other inputs to produce goods and services. The tactics are grouped into general categories such as input substitution and conservation, use of excess capacity and inventories, and geographic or cyber relocation. Our analysis indicates that the set of cyber resilience tactics is extensive, diverse, potentially very effective, and relatively low cost. Additionally, resilience is examined for two key sectors on which cyber activity depends – electricity and production of cyber equipment – to provide further insights and context on this issue.
This article investigates the current developments in research and practices in the domain of Supply Chain Risk Management (SCRM) through a systematic and typological approach in order to improve the understanding of SCRM field. This field has created a strong scientific and professional polemic, resulting in an exponential growth of published research work, reports and article. However, it has been discussed that SCRM lacks typological approach by several authors underlining this fact through their frameworks. In response, this review examines various perceptions, notions, definitions, drivers and sources of Supply Chain Risk (SCR), in order to identify major SCRM frameworks. This analysis is required in order to identify the main issues that needed to be addressed in the field of SCRM. Thus, the objective of this paper is to classify these frameworks so as to identify news issues, opportunities and directions for further study and researches.
Supply Chain Risk Management has increasingly becoming a more popular research area recently. Various papers, with different focus and approaches, have been published since a few years ago. This paper aims to survey supply chain risk management (SCRM) literature. Paper published in relevant journals from 2000 to 2007 will be analysed and classified into five categories: conceptual, descriptive, empirical, and exploratory cross-sectional and exploratory longitudinal. We also looked at the papers in terms of the types of risks, the unit of analysis, the industry sectors, and the risk management process or strategies addressed. The literature review will provide the basis for outlining future research opportunities in this field.
Purpose
This paper aims to introduce a web-based pilot system for minimizing the ripple effect (i.e. spreading of the negative impact of an exceptional event along the supply chain from its original position) caused by operational risks in the context of make-to-order supply chains.
Design/methodology/approach
The study employs a design science research methodology, which covers three major stages: system requirements identification, business process design and the implementation and evaluation of a web-based pilot system.
Findings
The developed system has the potential to significantly reduce the negative impact of the ripple effect caused by operational risks in a make-to-order supply chain in terms of material shortages, late deliveries and subsequent additional costs associated with expediting measures when a customer order is running late.
Research limitations/implications
The system presented in this paper is a prototype that needs to be further developed and tested in the future.
Practical implications
This paper provides integrated business processes and useful guidelines for supply chain managers and information system developers in dealing with the ripple effect in the supply chain.
Originality/value
In contrast to prior studies that have focused on investigating the impact of the ripple effect on the supply chain caused by natural or man-made disasters, this research attempts to offer a novel approach to address the research problem (i.e. the ripple effect caused by operational risks such as delays) directly from the design science perspective.
While firms are increasingly exposed to catastrophes due to global presence of their supply chains, the development of supply chain resilience becomes crucial to businesses. Thus, it is important to examine business values for supply chain resilience under different types and levels of disruptions. Drawing on the organizational information process theory, a theoretical model was developed to examine the moderating effects of the various supply chain disruptions on performance outcomes. Empirical evidence, collected from primary and secondary data sources, suggests that supply chain resilience is found to be positively associated with risk management, market, and financial performance. In particular, supply chain resilience has shown importance in contributing to the risk management and market performance when firms experience high levels of supply side, infrastructure, and catastrophic disruptions.
Supply chain finance (SCF) is an important solution that optimizes cash flow in order to lower financing costs and improve business efficiency especially for small and medium-sized enterprises (SMEs). Risk management is the essential requirement of SCF. In recent years, the digital economy is developing rapidly worldwide and holds huge potential for entrepreneurs and SMEs. In the digital economy scenario, digitalization of supply chains is also becoming increasingly dynamic. Blockchain technology is regarded as a potential means of digitalization for supply chains and could play an important role in supply chain finance risk management. This paper first reviews the literature of supply chain finance risk management and provides some disadvantages of traditional supply chain finance risk management. Then we survey the new perspective for supply chain finance risk management based on blockchain technology. In particular, blockchain can increase the information transparency of the supply chain, thereby reducing the credit risk of SMEs financing and the operational risk in SCF. Categorization and analysis of the literature, it provides an important perspective for future research of supply chain finance risk management based on blockchain technology in the era of digital economy.
This paper primarily explores whether the transmission of a supplier’s disruption risk along the supply chain exists using a quantitative survey conducted in 31 Chinese automotive-related companies. Two downstream supply chain members are considered: manufacturer and distributor. Structural equation modelling is used. We find that both manufacturer and distributor can be affected by supplier disruptions. In particular, distributors are impacted in two ways: indirectly and directly. On the one hand, indirect transmission of the supplier’s disruption risk to distributors is assumed to be an outcome of interrupted material flows for the production and sales of whole vehicles along the supply chain. Domino effect is used to explain this phenomenon. On the other hand, direct transmission is presumed to originate from the direct business contact between the supplier and distributors in terms of automotive spare parts. Based on primary findings, this paper further investigates strategies used by manufacturers and distributors to mitigate the adverse effects of supplier disruptions through semi-structured interviews. Theoretical and practical implications, as well as limitations, are discussed.
Implementation of means for enhancing cyber resilience, such as those discussed in the preceding chapters, costs money. Is this a worthwhile investment? This chapter provides an economic perspective on how to choose the most economically appropriate approaches to improving cyber resilience. These considerations are rather complex. For example, property damage, except for destruction of data, has thus far been a relatively minor cost of cyber threats, in contrast to instances of significant loss of functionality of a cyber system itself or the system it helps operate. The latter translates into loss of output (sales revenue and profits) and loss of employment, and is often referred to as business interruption (BI). Thus, in addition to pre-event mitigation, post-disaster strategies that enable a system to rebound more efficiently and quickly offer the prospects of greatly reducing BI. Moreover, there are numerous resilience tactics that comprise a strategy on both the cyber service provider side and customer side, many of which are relatively inexpensive. The latter include backup data storage and equipment, substitutes for standard cyber components, conserving on cyber needs, and recapturing lost production once the cyber capability is restored. This chapter describes the analysis based on basic principles of economics and is couched in a benefit-cost analysis (BCA) framework as an aid to decision-making. This chapter goes beyond the conceptual level and offers estimates of the costs and effectiveness of various mitigation and resilience tactics.
This paper proposes a novel decision-making framework to design a resilient hub network under operational and disruption risks. The proposed framework accounts for disruption risks via considering three primary resilience dimensions involving proactive capability, reactive capability, and design quality. Also, a new objective function is introduced to assess the resilience level of the designed hub network. A hybrid solution approach is proposed to solve such a multi-facet complex problem efficiently. Finally, several in-depth analyses are conducted to validate the proposed solution approach by which some managerial insights are also provided.
Eine Aufgabe innerhalb des Supply Chain Risikomanagements ist es, Risiken einzelner Elemente als auch Risiken der gesamten Supply Chain zu untersuchen. Allerdings wurde in diesem Zusammenhang eine funktionale Beschreibung der Risikostruktur in der Literatur bisher weitgehend vernachlässigt. Zur Unterstützung dieser These zeigen die Ausführungen innerhalb des Beitrages die Ergebnisse einer umfassenden Literaturrecherche zum Forschungsgebiet Supply Chain Risikomanagement auf. Dabei werden basierend auf dem aktuellen Forschungsstand zentrale Fragen für weiterführende Arbeiten identifiziert.*
This book is an ambitious effort by three well-known andwell-respected scholars to fill an acknowledged void in theliterature a text covering the burgeoning field of empirical finance.As the authors note in the preface, there are several excellent bookscovering financial theory at a level suitable for a Ph.D. class or asa reference for academics and practitioners, but there is little ornothing similar that covers econometric methods and applications.Perhaps the closest existing text is the recent addition to the WileySeries in Financial and Quantitative Analysis. written by Cuthbertson(1996). The major difference between the books is that Cuthbertsonfocuses exclusively on asset pricing in the stock, bond, and foreignexchange markets, whereas Campbell, Lo, and MacKinlay (henceforth CLM)consider empirical applications throughout the field of finance,including corporate finance, derivatives markets, and marketmicrostructure. The level of anticipation preceding publicationcan be partly measured by the fact that at least three reviews(including this one) have appeared since the book arrived. Moreover,in their reviews, both Harvey (1998) and Tiso (1998) comment on theneed for such a text, a sentiment that has been echoed by numerousfinance academics.
Competition in the personal computer industry is predicated upon the careful management of logistics, particularly those aspects concerned with time. This is due to the need to mitigate the loss-of-value dynamics of the critical components utilized in PCs. PC firms have developed various value chain models for controlling this devaluation process. Direct marketers such as Dell have organized their production activities to manage and benefit from the constantly falling prices. In contrast, their more traditional competitors continue to lose market share because they have been unable to manage time as effectively.
Bief-the core idea The Idea in Practice-p utting the idea to work 3 What Is the Righr Supply ChaiD fo. your product? 15 Further Readilg A iist ofrelated materials, with annotations to guide further exploration of the articlds ideas and applications Product 8509 Are you frequently saddledwith exces5 in-ventory? Do yoir suffer poduct sholtages that have cultorner5 leaving sioles in a hufi Do these supplychain headaches pet' ti{ despite your investments in technolo-gies such as alnornated walehousing and Gpid logirtics? lf so, you rnay be using the wrong supply chain forthe type of poduct you sell.sup-pose your offering is funational*it sati{ies basic,unchanging needt and has a long life cycle, Iow margins. and stable demand. {Think paper towels or lighl bulbs) In this case, you need an efRcienl 5u pply chain-which minimizes productron, transpona-tion, and Storaqe coJts. BLn what il your product is mnovolive-il has great vanety, a short life cycle, high profit rlargins,and volatile denEnd? (A line oflaptopswhh a lange of novel features is one example) Forthis offering, you require a responsive supplychain. Fast and flexi' ble, i helps)lcu rnanage uncenainty through strategiet trJch as cutting lead tirnes and establishinq inventory or excess-capacny buffers. Design the right supplychain for your prod_ uct, and youl profrt! soal Forexample, by building responsiveness into lls chain, inno-vative skrwear comFEny Spon obetrmyet Rduced t5 o/er-Bnd underpoduc(ion .o!ts by half-boosling prcfits 60%.
Sumario: In a time of shortening product life cycles, complex corporate joint ventures, and stiffening requirements for customer service, it is necessary to consider the complete scope of supply chain management, from supplier of raw materials, through factories and warehouses, to demand in a store for a finished product. Hewlett-Packard has developed a framework for addressing the uncertainty that plagues the performance of suppliers, the reliability of manufacturing and trasnportation processes, and the changing desires of customers. The author describes several cases in which entire product families have been reevaluated in a supply chain constext. The methodology he presents should help others to manage their own supply chains more successfully
The impact of microprocessor is more daunting to predict, since it is revolutionizing so many facets of modern life. The 4004 microcomputer set, the first commercial microprocessor, was introduced for general sale at the end of 1971. Smaller than a baby's thumbnail and packing 2,300 transistors, the $200 chip delivered as much computing power as the first electronic computer. As it turned out, this single invention of microprocessor has revolutionized the way computers are designed and applied. The microprocessor has put intelligence into "dumb" machines and distributed processing capability into previously undreamed-of applications. The innovation of microprocessor has sparked many potentials. The first digital scales at local grocery stores, the microcomputer converted weights to prices and operated a label printer for marking purchases. Traffic lights could detect waiting cars and control traffic more efficiently. A revolution in everything from medical instruments to inventory computers in fast-food restaurants, airline reservation systems to gasoline pumps
Catastrophe Bonds whose payoffs are tied to the occurrence of natural disasters offer insurers the ability to hedge event risk through the capital markets that could otherwise leave them insolvent if concentrated solely on their own balance sheets. At the same time, they offer investors a unique opportunity to enhance their portfolios with an asset that provides an attractive return that is uncorrelated with typical financial securities Despite its attractiveness, spreads in this market remain considerably higher than the spreads for comparable speculative grade debt.
This paper uses results from behavior economics to suggest why cat bonds have not been more attractive to the investment community at current prices. In particular, the authors suggest that "ambiguity aversion", "loss aversion", and "uncertainty avoidance" may account for the reluctance of investment managers to invest in these products. In addition, since Catastrophe Bonds are a new type of investment, investors must invest time and money up front in order to educate themselves about the legal and technical complexities of the Cat Bond market before that investor can make a "to-buy or not-to-buy" decision. Such a transaction cost may reduce the attractiveness of the new bonds to the point where the investor would prefer to stay out of the market.
The bulk of the paper consists of quantitative assessments of each of these hypotheses, along with a demonstration that Cat Bonds are indeed much more attractive than high yield bonds in terms of their Sharpe ratios (the ratio of the "excess return" over the risk free rate to the standard deviation of returns on the bonds). This is accomplished by simulating potential losses for hypothetical Cat Bonds under a wide variety of hurricane scenarios for the Miami/Dade county are.
These findings lead the authors to suggest that issuers of Cat Bonds could themselves take steps to lower the cost of placing risk in this manner. Specifically, issuers might standardize a simple structure of terms to decrease the investor's cost of education. In addition issuers could better quantify and reduce pricing uncertainty. These steps will should increase demand for these instruments and produce a concomitant reduction in price.
DRAM supply chain gets stress tested
- J. Baljko-Shah
Annual Report for FY ending January 28, 2000: Form 10-K
- Dell Computer
Annual Report for FY 1999: Form 10-K
- Gateway
Fiorina shakes up HP to rejuvenate vendor
- J. Hagendorf
Apple net may fall up to 30 percent in quarter
- D.P. Hamilton
Quarterly Report for Period Ending January 31, 2000. Form 10-Q
- Hewlett-Packard
Compaq to shorten inventory cycle
- D. Pendery
Taiwan's 921 Quake: Effect on the Semiconductor Industry and Recommendations for Preparing Future Earthquakes
- B Sherin
- S. Bartoletti