Impact of ripple effect in the semiconductor supply chain on the stock market: a signalling theory and resource dependence perspective

Purpose The focus of this research is to assess the consequences of semiconductor shortages in the context of the Indian automotive industry. It highlights the susceptibility of the industry by evaluating stock market returns, enterprise value and profitability both before and after the disruption. It enhances the comprehension of how such disruptions impact market reactions and firm resilience. Design/methodology/approach This research utilizes an event study approach in conjunction with fixed-effects panel data regression to evaluate the financial impact of semiconductor shortages on the Indian automotive industry. Key metrics such as stock market returns, enterprise value and profitability are analysed pre- and post-disruption to assess the financial and market impact. Findings The results show how crucial the availability of semiconductors is in relation to profitability and market capitalization for the Indian automotive industry, having persistent negative effects for up to 10 quarters. On the other hand, persistently high demand coupled with government policy efforts, including an intention to produce semiconductors domestically, will assist in alleviating these impacts over time. Originality/value This study tackles an important oversight in previous research by analysing the financial ramifications of semiconductor shortages in the Indian automotive industry. Though some research examines supply chain disruptions, very few assess the long-term impact on net income and market valuation, which this study seeks to address. We also use signalling theory to assess the impact of disruption announcements on stock market reactions as well as resource dependence theory, which explains firms’ responses to resource scarcity, to analyse these phenomena on a more global scale.