Examining the impact of reshoring initiatives on shareholder wealth of its domestic suppliers

Abstract

Recent disruptions like trade wars and the COVID-19 pandemic have highlighted vulnerabilities in global supply chains, leading to an increased trend in reshoring. Although a growing number of studies have analyzed reshoring's impact on the focal company, the literature remains scant concerning its effect on associated domestic suppliers. Accordingly, the purpose of this study is to examine the effect of focal companies’ reshoring initiatives on their domestic suppliers. Grounded in Resource Dependence Theory (RDT), we posit that reshoring can recalibrate the resource interdependencies between reshoring companies and their suppliers. Specifically, reshoring may increase a company’s reliance on its domestic suppliers, affecting suppliers’ resource acquisition and financial performance. The study employs an event study methodology to assess the influence of reshoring announcements on domestic suppliers' shareholder wealth. The findings of our primary analysis and the robustness tests demonstrate that the reshoring announcements of focal companies generally yield a significantly negative effect on the shareholder wealth of their domestic suppliers. While revealing the complexities faced by domestic suppliers, we also demonstrate how reshoring leads to altered dependency relationships and power dynamics within supply chains. Our study provides a comprehensive understanding of reshoring's broader consequences on supply chain stakeholders, especially domestic suppliers, and offers a holistic perspective on reshoring's multifaceted effects.

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