Negative Spillover of External WOM in Supply Chain Partnership

In this study, we explore how customers’ WOMs in firms’ crisis events spread across organizational boundaries to affect their supply chain partners. Based on guilt-by-association theory, we propose that both the external WOM effect and internal demand-supply effect have a mediator influence on the relationship between news report of crisis and firm performance of its supply chain partners. In other words, the damage of a crisis event will spread through two intermediaries, and finally be reflected in the stock market performance. We collected second-hand longitudinal data from financial databases, search engines, and social media to verify our hypotheses. Our results support both the direct and mediating role of News volume, WOM volume, and crisis-stricken firm’s abnormal returns on its supply chain partner’s abnormal returns. These findings not only help enrich the understanding of crisis spillover effect to supply chain partners, but also provide some guidance for investors and managers.