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The financial impact of retail store closure announcements

Jaideep Chowdhury (Department of Finance and Business Law, James Madison University, Harrisonburg, Virginia, USA)
Sourish Sarkar (Sam and Irene Black School of Business, Penn State Erie, The Behrend College, Erie, Pennsylvania, USA)

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

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Emerald Publishing Limited

Copyright © 2017, Emerald Publishing Limited