Shareholder Wealth Effects of Modern Slavery Regulation

Abstract

We examine the shareholder wealth effects of the adoption of the UK Modern Slavery Act (MSA) in 2015. The MSA’s Transparency in Supply Chains clause introduced new reporting requirements mandating certain firms to provide an annual statement outlining their actions to tackle modern slavery in their business and supply chains. An event study of stock price reactions of UK firms covered by the MSA to eight events associated with its adoption provides no evidence of abnormal stock returns. We do, however, uncover significant cross-sectional differences in stock price reactions, with results suggesting that the MSA provides a competitive advantage to firms with a demonstrated track record of addressing slavery risk. By contrast, we do not find evidence of an impact of firms’ pre-regulatory Corporate Social Responsibility disclosure on stock price reactions. Our findings highlight the economic value for companies of maintaining socially responsible sourcing practices, and inform the current policy debate on the importance of greater transparency in corporate supply chains.

Keywords: Modern Slavery Act; supply chain transparency; event study; socially responsible sourcing; CSR disclosure