Caught red-handed: the cost of the Volkswagen Dieselgate

Abstract

Purpose

With the investigation of the US stock market response to the Volkswagen Dieselgate, this paper aims to empirically demonstrate a case of dissemination of corporate scandals and events through industries and supply chains (i.e. inertial effect).

Design/methodology/approach

Individual event studies were conducted in the analysis of the market value fluctuations of 33 companies of the American automotive industry upon the disclosure of the scandal.

Findings

Results show that the fraud held by the German automaker spread to surrounding companies within the industry and supply chain levels of analysis, contaminating market values and costing around 6.44 billion dollars to American firms.

Originality/value

Building on the efficient market hypothesis and on the literature on supply chain management, empirical evidences support the conceptualization of the inertial effect as a valid rationale to address the dissemination of events through companies not directly involved. In that sense, the study contributes to an emerging and promising research field within the supply chain management literature. Beyond that, its interdisciplinary approach may inspire future research in the applicability of the event study methodology in similar contexts, as well as of alternative forms to empirically test other theoretical constructs.

Citation

Fracarolli Nunes, M. and Lee Park, C. (2016), "Caught red-handed: the cost of the Volkswagen Dieselgate", Journal of Global Responsibility, Vol. 7 No. 2, pp. 288-302. https://doi.org/10.1108/JGR-05-2016-0011