Post-accident stock returns of aircraft manufacturers based on potential fault

• Little previous consideration has been paid to airline manufacturer stocks, post-accident.
• We find significant abnormal negative returns to manufacturer stocks after crashes.
• Findings are driven by strong negative reactions when potential manufacturing flaws are subsequently linked to incidents.
• In cases where no potential manufacturer error is linked to the incident, the market reaction is initially less severe.
• Later, in cases with no potential manufacturer error, prices rebound to be significantly positive weeks after the crash.

The literature has considered the market's response to the stocks of commercial airline carriers after their flights are involved in accidents. The aircraft manufacturer stock price, in the wake of a crash, has received considerably less attention in the literature. We analyze this response over a modern sample period and determine that a quick downturn of nearly 50 basis points of negative abnormal return accompanies the typical accident. Careful consideration of the cause of the accident, however, reveals a striking difference in market reaction based on the potential fault of the manufacturer. Market reactions are initially significantly negative when the manufacturer is judged to have potential fault in the incident but are otherwise insignificant. The market makes this determination even though there is often some ambiguity surrounding an accident's circumstances. We also find that manufacturer stock prices continue to drift significantly downward in the weeks following accidents that are deemed to potentially involve manufacturer fault. However, prices rebound significantly from the smaller initial downward reaction when no fault is linked to the manufacturer and actually demonstrate positive abnormal returns weeks after an accident.