Public Disclosure of the Sweatshop Practices of American Multinational Garment/Shoe Makers/Retailers: Impacts on Their Stock Prices

Abstract

The anti-sweatshop movement burst in the American public's consciousness in the 1990s. By the late 1990s, an eclectic group of 43 American NGOs and a growing number of international organizations were engaged in the movement. But, as yet, there are no rigorous empirical studies of the impact of anti-sweatshop actions on those firms accused of relying on sweated labor. This paper addresses this lacuna by using the event study technique to empirically assess the impact of public disclosure of firms' sweatshop practices on their stock prices. The paper finds that public disclosure does indeed cause firms' stock prices to fall, sometimes substantially. This, no doubt, explains the rush by these firms to voluntary codes of conduct. The paper also shows that stock prices have reacted positively (and substantially) to the actions taken by one firm, Reebok, to adopt anti-sweatshop practices. These findings appear to confirm the wisdom of the public disclosure strategies used by the movement to get firms to change behavior. But because of the potential for voluntary codes of conduct to result in opportunistic behavior, the paper concludes by arguing that public disclosure will only really work if carried out by independent third party auditors.