Human rights allegations in supply chains: the impact of reverberation on financial markets and social evaluations

Purpose This study examines the relationship between the reverberation of follow-up news of a firm's human rights allegations concerning working conditions on share price volatility and social score. These allegations may generate reputational risks that are amplified by NGO and media coverage, thereby shaping financial and social analysts' evaluations of the firm's ability to manage such risks. We also test whether the adoption of human rights policies moderates these potential negative effects. Design/methodology/approach To test our hypotheses, we constructed a firm-year panel comprising 147 US-based firms from 2015 to 2022. We combined data on human rights allegations against firms and their follow-up news from the Business and Human Rights Research Center, sustainability information from the Bloomberg ESG module, financial data from Compustat and stock market data from the CRSP database. Findings Our results show that follow-up news reverberation of a firm's human rights allegations is associated with reduced share price volatility, as sustained information may make a firm's actions more visible and predictable to shareholders. Conversely, this reverberation negatively affects a firm's social score, especially in the case of negative follow-up news and in the presence of human rights policies. Reverberation may reveal a decoupling between a firm's stated commitments and its actual behavior regarding human rights. Originality/value This paper reframes human rights allegations as reputational and human rights risks perceived by investors and social evaluators, who respond differently based on the reverberation of such allegations as amplified by NGOs and the media.