The financial impact of retail store closure announcements
International Journal of Physical Distribution & Logistics Management
ISSN: 0960-0035
Article publication date: 3 July 2017
Abstract
Purpose
While store closure announcements frequently appear in newspapers, little is known about the financial impact of store closure decisions on the retailer’s market value. The purpose of this paper is to investigate the stock market reaction to the announcements of retail store closure decisions.
Design/methodology/approach
The authors collect data from news articles on store closure announcements in the USA during 1995-2016. Using the four-factor model in an event study, the authors compute the abnormal stock returns for the retail firms due to these announcements.
Findings
Based on the authors’ analysis for sample and matching control firms, the abnormal stock returns for store closure announcements are found to be positive overall. The authors find evidence that the positive effects of the announcements are stronger, particularly for the firms which have positive sales growth at the time of the announcements. The authors also report that industry competition acts as a negative moderator in the relationship between announcements and financial impacts.
Practical implications
The authors’ analysis implies the investors’ positive sentiment of store closure announcements as a viable cost-cutting strategy, especially when it is done proactively by better performing retailers. The findings should be useful to the supply chain managers of retail industries in making store closure decisions.
Originality/value
This paper is believed to be the first to address the impact of retail store closure announcements on the stock market. The authors’ approach of categorizing the firms based on their sales growth seems to be the first in the event study literature on corporate restructuring.
Keywords
Acknowledgements
There has been an equal contribution by both authors.
Citation
Chowdhury, J. and Sarkar, S. (2017), "The financial impact of retail store closure announcements", International Journal of Physical Distribution & Logistics Management, Vol. 47 No. 6, pp. 536-556. https://doi.org/10.1108/IJPDLM-04-2016-0117
Publisher
:Emerald Publishing Limited
Copyright © 2017, Emerald Publishing Limited