The impact of logistics and manufacturing on shareholder wealth

Abstract

This paper analyzes the impact of logistics and manufacturing outsourcing announcements on shareholder wealth. We assess this impact by measuring the abnormal return (which is the part of the return of a stock not related to market or industry wide movements) of 181 announcements from 1992 to 2003. We find that manufacturing outsourcing announcements increase the contract granting firm stock price by .4% and that logistics outsourcing announcements decrease the stock return by .6%. We also conducted a 60 day post announcement analysis and concluded that this is a transient effect. To gain further insight we preformed regression analysis with variables such as debt-to-equity ratio, market-to-book ratio, firm size, growth prospect and time of the outsourcing deal. None of the regressions were statistically significant. We then conducted sensitivity analysis on factors such as industry competitiveness, capital, research and development intensity and use of multiple outsourcing firms to validate our previous findings. Only one regression showed statistically significant results: manufacturing outsourcing for the retail and wholesale industry with value of -.05. Our findings suggest that shareholders value manufacturing outsourcing deals and penalize logistics outsourcing deals, but only in the short run.