The impact of governmental COVID‐19 measures on manufacturers' stock market valuations: The role of labor intensity and operational slack

ABSTRACT

This study investigates the impact of the Chinese government's Level I emergency response policy on manufacturers' stock market values. We empirically examine the roles of human resource dependence (labor intensity) and operational slack within the context of supply chain resilience. Through an event study of 1357 Chinese manufacturing companies, we find that the government's emergency response policy triggered statistically significant positive abnormal returns for manufacturers. However, we also find that there exists a negative impact on abnormal returns for manufacturers that are labor‐intensive, giving rise to arguments based in resource dependence theory. In addition, the results indicate the positive role played by operational slack (e.g., financial and inventory slack) in helping manufacturers maintain operations and business continuity, effectively mitigating risks and adding to the manufacturers' resilience. With these findings, we contribute to operations and supply chain management by calling attention to the importance of human resource redundancy while at the same time identifying financial slack and inventory as supply chain resilience strategies that were able to mitigate pandemic‐related risks. Highlights Although government policies and regulations are often central for supply chain risk mitigation, they may sometimes also carry secondary risks;manufacturers should monitor and ideally anticipate public policy interventions. Slack financial resources provide greater flexibility in a company's response to an unanticipated event and should thus be emphasized;nevertheless, the value of excess inventory should not be neglected. A greater dependence on labor exposes manufacturers to greater risks, especially when public policy curtails travel and the movement of labor. Governments should use policymaking as a means to provide guidance and support regarding the deployment of manufacturers' operational slack, especially financial slack.