Introduction to the Event Study Method in Management and Supply Chain Management Research

Introduction

When we consider the interest of most researchers in the areas of operations, supply chains, and general management, we often find that we want to improve things. However, to achieve these outcomes, we often need to know whether a change makes a difference. Consequently, we often look for causal relationships between managerial implementations and initiatives and meaningful outcomes for the company or organization.

In this light, it is interesting to consider the event study method, which has been widely used in the finance area. This has become one of the major approaches to conducting modern corporate finance research and forms the basis for a growing body of research. In finance, the focus is often on the announcement of dividends, stock splits, mergers and is less associated with many of the day-to-day management activities in which we are interested. However, the approach is also valuable to investigate activities and events that will interest general management and operations and supply chain management researchers and practitioners.

This book intends to introduce general management and supply chain management researchers and postgraduate students to the event study method. I am framing this as an applied guide that focuses on the method and many core assumptions, required to design and execute an effective and meaningful study. As such, we do not deeply examine the mechanics of specific tools or software packages to run the calculations, but on the steps to get you there and interpret what you get out of the software.

Therefore, this book guides the reader through the required steps in completing a study. For example, considering the type of event that may be useful, finding appropriate announcements and use that will help create the list of events for the study, developing hypotheses, identifying issues and problems. Finally, we look at running the analysis to calculate the abnormal returns in a subsequent cross-sectional regression and how to interpret and make sense of the results before writing up the studies.

This introductory chapter summarizes the widespread nature of the method and how the approach may be interesting to readers in a range of management and supply chain research journals. We also explore how it may interest many departments and examiners of dissertations.

Through the volume, we will also look at many examples with excerpts from different studies that highlight some of the critical issues and how you might address them. In addition, I provide commentary and explanation in additional detail about how you might overcome some of these problems and challenges to develop a unique and powerful study based on the event study method. Through doing this, I have taken a non-mathematical treatment, assuming that many readers will use established software and are more interested in designing a compelling study while using well-established analytical techniques. Therefore, while we do not address the state-of-the-art in terms of statistical advances in this area, we do look at some of the consequences and meaning of the different models that might be used in the estimation procedures and ensure that you follow best practice. By doing this, I aim to enable the readers to overcome obstacles and the uncertainty around many fundamental design steps and activities before and after calculations and estimation procedures that are often the focus of event study works.