The impact of reshoring decisions on shareholder wealth

• DOI: http://doi.org/10.1016/j.jom.2016.12.002
• Published date: 01 March 2017
• Date: 01 March 2017

The impact of reshoring decisions on shareholder wealth

Emma Brandon-Jones

a

, Marie Dutordoir

b

, Joao Quariguasi Frota Neto

b

, Brian Squire

a

,

*

a

HPC Supply Chain Innovation Lab, Information, Decisions and Operations Division, School of Management, Universityof Bath, BA2 7AY,United Kingdom

b

Alliance Manchester Business School, The University of Manchester, Manchester M15 6PB, United Kingdom

article info

Article history:

Accepted 8 December 2016

Available online 28 January 2017

Accepted by: Mikko Ketokivi.

Keywords:

Event study

Reshoring

Shareholder value

abstract

Interest in reshoring, defined as the return of manufacturing and service operations from previously

offshored locations to the U.S., has gained momentum recently. Yet,there is no academic evidence on the

shareholder value implications of reshoring decisions. This paper analyzes the shareholder wealth effects

of 37 reshoring decisions announced by U.S. firms during 2006e2015. Our results indicate that reshoring

announcements result in positive abnormal stock returns. Mean (median) abnormal stock returns on

reshoring announcements are 0.45% (0.29%), corresponding with a mean (median) market value change

of $322.57 million ($31.60 million). Our findings imply that the benefits associated with the reshoring

tend to outweigh the costs. This finding is relevant for firms faced with the decision of whether to move

business activities from offshore to domestic locations. It is also of interest to policy makers who may

seek to further stimulate the reshoring phenomenon.

©2017 The Authors. Published by Elsevier B.V. This is an open access article under the CC BY license

(http://creativecommons.org/licenses/by/4.0/).

1. Introduction

Changes in global economic conditions have reignited the

debate surrounding manufacturing and service location decisions.

Many have been quick to point to recent announcements of firms

including General Electric, Caterpillar, Ford, and Apple, as evidence

of a nascent trend to move business activities from foreign locations

to domestic markets. Although these decisions have been labelled

with terms such as back-shoring, homeshoring, onshoring,

reshoring, and back-reshoring (Gray et al., 2013; Fratocchi et al.,

2014), the term reshoring seems to be most commonly used in

the business press and academic literature.

While previous studies have provided valuable insights into the

determinants of reshoring (Porter and Rivkin, 2012; Ellram et al.,

2013; Tate et al., 2014), they have yet to determine its impact on

shareholder value. Given the current debate about reshoring de-

cisions, a rigorous study of their stock price effects appears

particularly timely. Our study fills this gap by analyzing the

shareholder wealth effects of firms’decisions to reshore operations

to their country of domicile. We focus on U.S. firms, as the reshoring

movement is so far mostly a U.S. phenomenon (The Economist

Intelligence Unit, 2013).

Whether reshoring decisions result in positive or negative stock

price reactions is an empirical question, as it depends on the rela-

tive magnitude of their predicted benefits and costs. Using event

study methodology on a sample of 37 reshoring decisions

announced by publicly traded U.S. firms between 2006 and 2015,

we find that reshoring creates positive shareholder wealth effects.

The magnitude of the mean (median) stock price effect is 0.45%

(0.29%), which corresponds to a mean (median) market value gain

of $322.57 million ($31.60million).

By documenting the sign and magnitude of the shareholder

wealth effects of reshoring announcements, our results offer

guidance to managers deciding on whether to move business ac-

tivities from offshore to domestic locations. Our findings suggest

that the benefits of reshoring decisions outweigh their costs, on

average. This evidence can serve as a further justification for gov-

ernment and industry incentives stimulating the reshoring

phenomenon.

The remainder of this paper is structured as follows. Section 2

develops our hypotheses on the shareholder wealth effects of

reshoring decisions. Section 3describes the sample and method-

ology. Section 4gives the empirical results. Section 5discusses the

implications and limitations of our work, as well as possible ave-

nues for future research.

*Corresponding author.

E-mail addresses: ebj20@bath.ac.uk (E. Brandon-Jones), marie.dutordoir@

manchester.ac.uk (M. Dutordoir), joao.quariguasifrotanet@manchester.ac.uk

(J.Q. Frota Neto), b.c.squire@bath.ac.uk (B. Squire).

Contents lists available at ScienceDirect

Journal of Operations Management

journal homepage: www.elsevier.com/locate/jom

http://dx.doi.org/10.1016/j.jom.2016.12.002

0272-6963/©2017The Authors. Published by Elsevier B.V. This is an open access article under the CC BY license (http://creativecommons.org/licenses/by/4.0/).

Journal of Operations Management 49-51 (2017)31e36