Abstract
Negotiations between manufacturers and retailers often go sour. In an attempt to stand their ground, firms increasingly exercise coercive power and decide to delist products until the conflict is resolved. Using an event study, this paper provides knowledge on the performance implications of these so-called conflict delistings. While the results show that, on average, conflict delistings severely damage firm value, the direction and magnitude of the stock market reaction is contingent upon conflict and firm characteristics. Conflict delistings are more harmful to firm value if the focal party is a manufacturer (versus a retailer) or the initiator of the delisting. They also harm firm value more when more brands were delisted and when the size of the focal firm is much larger than the opponent’s size. A conflict delisting is more beneficial if the focal party has a strong brand and if the opponent’s brand strength is weak.
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Notes
We acknowledge that the high concentration rate for retailers may not apply to all retailing sectors. Most of our cases (93%) belong to grocery retailing. The remaining cases belong to the category of books, music, and video (5%), toys and hobby (1%), and furniture and home furnishings (1%). Because the latter two cases come from sectors with lower concentration rates for retailers, we re-estimated our model by excluding these cases. The main results, including the significant negative effect of the manufacturer dummy variable, are robust in this reduced set of observations.
We use the (single-factor) market model instead of the three (or four) factor Fama-French (1993) model as the Fama-Factors (i.e., SMB, HML, UMD) are only available for U.S. firms (see, e.g., Gielens et al., 2008 for a similar practice).
Conflict characteristics or characteristics specific to the conflicting partner in the outcome model cannot be conceptualized/measured in absence of a conflict delisting (i.e., elimination size, publicity, initiator, brand strength partner, firm size asymmetry, and local). Therefore, these are not included in the selection model.
To rule out that marketing intensity would also influence the abnormal returns, we included it as a control variable in the outcome model. This variable is not significant.
We included a dummy variable in our main model to control for potential differences between local stock exchanges and parent stock exchanges. This variable is not significant.
We limited our media search to newspapers with a circulation of at least 1% of the population (see Cleeren et al., 2013 for a similar practice).
The brand strength data is available from 2006 onwards, and these data are mostly stable across the different years. Therefore, brand strength of parties involved in conflict delistings happening prior to 2006 was measured by the data from 2006.
For eleven firms, we impute missing partner size with the most recent available data. Our main findings are robust upon the exclusion of these cases, with the exception of brand strength of the partner which becomes marginally insignificant (p = .113). Fourteen other cases were excluded because of missing information on partner size across all years.
For three partners, the annual statement did not distinguish between long-term and short-term debt. In these cases, total debt was used.
Some firms did not report SG&A (4% of 1,620 observations; i.e., one observation in the outcome model, 71 observations in the selection sample). We assigned a zero value for these observations. Moreover, in line with common practice, firms with missing R&D expenses were assigned a zero value and retained in the sample (Markovitch et al., 2020). We performed multiple robustness checks to validate our results. First, we excluded the observations with missing values for SG&A. Second, we reran our analysis by measuring marketing intensity as the ratio of SG&A to total assets (cf. Raassens et al., 2014) for both our full sample and the reduced sample. Finally, we used mean imputation to replace the missing values of SG&A. Our results are robust to these alternative specifications.
The economic significance is based on the market value (number of common shares outstanding times the share price (in Euro) at the end of that day) on the day before the event window [t-1] (cf. Geyskens et al., 2002).
To generate the different scenarios, we only take into account the significant coefficients and set the non-significant coefficients to zero.
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Hermans, M., Raassens, N. & Cleeren, K. What is the impact of a conflict delisting on firm value? An investigation of the role of conflict and firm characteristics. J. of the Acad. Mark. Sci. 52, 240–259 (2024). https://doi.org/10.1007/s11747-023-00930-w
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DOI: https://doi.org/10.1007/s11747-023-00930-w