Supply Chain Disruptions: Evidence from the Bankruptcy of Hanjin Shipping

Abstract

This paper exploits the insolvency announcement of Hanjin Shipping in 2016 to study the causal effects of supply chain disruptions on firm outcomes and sourcing behavior. This insolvency announcement stranded cargo in transit as ports refused to unload Hanjin vessels. Over 8,300 cargo owners and $14 billion USD of cargo were affected by this announcement. I use a novel dataset that links 5 million shipments from U.S. Customs with real-time vessel movement data to identify impacted firms and the distribution of cargo delays to study their causal effects. I present four key findings. First, I show that disruptions to the flow of inventory - characterized by uncertainty in resolution - can drive firms to place large panic orders. Second, I provide novel evidence that pre-existing supply chain redundancies can benefit firms during disruptions as hedging tools. Third, I show that supply chain disruptions can cause firms to modify future sourcing strategies. Finally, instrumenting for the increases in inventory with disruption variables, I re-examine the link between excess inventory and abnormal stock returns. In contrast to prior work, I find no such associations.