This study examines how disclosures of upstream labour exploitation affect the stock returns of downstream buying firms, and tests how information intermediary reach, incident severity, and criticism sharpness explain variation in the magnitude of these stock market reactions.
We developed our hypotheses based on attribution theory and conducted an event study of 5,649 disclosures of upstream labour exploitation spanning 2007–2024 to estimate market reactions. We then ran cross-sectional regressions to assess how information intermediary reach, incident severity, and criticism sharpness shape the magnitude of the market reactions.
Our results suggest that the disclosures of upstream labour exploitation have a negative impact on the stock returns of buying firms. In particular, such events lead to a cumulative average abnormal return of −0.2166% over the three-day event window, corresponding to approximately a $443 million decrease in market value. The negative impact is amplified when the information intermediary has greater reach and when the incident is more severe. However, criticism sharpness does not significantly affect market reactions to such disclosures. Our additional tests suggest that the number of labour violation labels within an event does not explain variation in market reactions, while several violation types are associated with more negative responses, and that market reactions extend to linked but non-reported buying firms.
This study extends the operations and supply chain management literature on labour exploitation by evaluating the stock-market impact of disclosures concerning upstream violations of labour standards, representing one of the earliest empirical examinations of this relationship. In addition, we introduce criticism sharpness as a distinct framing construct and examine how intermediary reach and framing shape the magnitude of these reactions. Our results offer implications for future research and practice.
