Stock market reaction to irregular supermarket chain behaviour: An investigation in the retail sectors of Ireland and the United Kingdom

The creation of a single European currency, financial crises, changing consumer tastes and the entry of a significant number of new competitors has created an extremely competitive retail environment in Ireland and the United Kingdom. To defend market share, some retail companies have resorted to a variety of questionable, unethical and illicit techniques. This paper examines the reaction of investors to such incidents involving publicly traded companies. An ARMAX-GARCH(1,1) model is utilised to present evidence that increased market volatility is associated with detrimental internal behaviour and financial malpractice which may reassure regulators that these actions are not considered by investors as an acceptable manner in which to operate a company. Further, investors often do not consider a single company to be at fault, but rather punish the entire retail sector for diminished responsibility due to substandard quality assurance.