Supply chain contamination: An exploratory approach on the collateral effects of negative corporate events

The present work investigates the impact of negative events on supply chain partners. Through a contextualised discussion of the literature on supply chains and on the efficient market hypothesis, it is proposed that negative events negatively impact the market value of suppliers and customers. Following an exploratory approach, 307 companies (21 source companies, 158 suppliers and 128 customers) comprehending 20 cases of environmental disaster, corporate social irresponsibility, operational failure, corporate fraud and corruption were analysed. Results show that in 12 out of the 20 cases investigated supply chain partners indeed had their market value penalised, encompassing, to a greater or lesser degree, all five categories of cases considered. Yet, while both suppliers and customers absorbed the outcomes of negative events, suppliers seem to be at greater risk of sustaining such losses. Likewise, cases in which the source companies were also negatively affected seem to be slightly more prone to cause losses among suppliers and customers. In this sense, the concept of supply chain contamination is coined to address the observed outcomes. The study offers new insights into the applicability of the efficient market hypothesis and contributes to the assessment of the dissemination of negative events in supply chains, a theme that, despite its potential detrimental consequences for firms and stakeholders, has not yet been sufficiently treated in the Management literature.