ICDRM Assessing the Financial Impacts of the World Trade ...


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ICDRM Assessing the Financial Impacts of the World Trade ...

  1. 1. Assessing the Financial Impacts of the World Trade Center Attacks On Publicly-Held Corporations The Institute for Crisis, Disaster and Risk Management The George Washington University Presented by: John R. Harrald, Ph.D. Research Team : John R. Harrald, Ph.D., Louise K. Comfort, Ph.D., Greg L. Shaw, M.A., CBCP, Doaa Taha, M.S., Damon Coppola, M.E.M., Sarp Yeletaysi, B.S., and Younhee Kim, M.S. Supported by NSF Grant # CMS 0219953 ICDRM
  2. 2. <ul><li>Background </li></ul><ul><li>Company Selection Process </li></ul><ul><li>Stock Data Collection Process </li></ul><ul><li>Display Products (Charts and Diagrams) </li></ul><ul><li>Preliminary Conclusions </li></ul><ul><li>Upcoming Project Tasks </li></ul>Outline
  3. 3. September 11, 2001 <ul><li>19 terrorists hijacked 4 aircraft for suicide attacks </li></ul><ul><li>Almost 3000 people killed </li></ul><ul><li>In Manhattan: - 34.5 million ft 2 office space lost </li></ul><ul><li>- $50-70 billion in insured losses </li></ul><ul><li>Most of these direct economic losses were incurred by the private sector </li></ul>
  4. 4. September 11, 2001 The WTC burning… The twin towers collapsed…
  5. 5. Terrorist Groups are Targeting U.S. And World Economy “ The settlement of this overburdened account will indeed be heavy. We will also aim to continue, by permission of Allah, the destruction of the American economy.” Ayman Al-Zawahiri, head of Al-Qaeda operational planning (6 October, 2002)
  6. 6. Long-Term, Overall Research Questions <ul><li>How did the 911 attacks affect long-term economic and financial performance of corporations directly or indirectly impacted ? </li></ul><ul><li>What unanticipated inter-org. adaptive responses involving large publicly held corp’s emerged during the recovery from the 9/11 attacks? </li></ul><ul><li>How have mgmnt. perceptions changed toward the req’s for investment in disaster recovery, security, and crisis mgmnt. as a result of these attacks? </li></ul><ul><li>How has the terrorist threat changed the perceived crisis mgmt, security, and disaster recovery best practices for large publicly held corporations? </li></ul><ul><li>What skills and knowledge are required for corporate crisis managers? </li></ul><ul><li>Can corporate preparedness for extreme events be evaluated based on internal and inter-organizational factors? </li></ul>
  7. 7. Scope of the Paper <ul><li>How did the September 11 attacks affect the long-term economic and financial performance of corporations directly or indirectly impacted? </li></ul>
  8. 8. Previous Research <ul><li>Private sector impacts have not been the subject of significant, in-depth research </li></ul><ul><li>General lack of data and models describing impacts at corporate/organizational level </li></ul><ul><li>Focus on small businesses (Alesch, Webb, Tierney) </li></ul><ul><li>Tied to particular events for specific companies </li></ul><ul><li>(Knight and Pretty) </li></ul><ul><ul><li>Everglades Air Crash, ValuJet, 1996 </li></ul></ul><ul><ul><li>Tylenol Poisoning, J&J, 1982 </li></ul></ul><ul><ul><li>Bhopal Gas Leak, Union Carbide, 1984 </li></ul></ul><ul><ul><li>Norco Explosion, Shell Oil, 1988 </li></ul></ul><ul><ul><li>Lockerbie Air Crash </li></ul></ul><ul><ul><li>Alaskan Oil Pollution, Exxon Valdez, 1989 </li></ul></ul>
  9. 9. Previous Research, Cont’d <ul><li>Provide valuable baseline for research </li></ul><ul><li>Do not adequately address critical issues of 9/11 </li></ul><ul><ul><li>Long term effect of extreme events on large, publicly held corporations </li></ul></ul><ul><ul><li>Effectiveness of pre-planned and professional corporate crisis management and disaster recovery activities on the long-range economic impact </li></ul></ul><ul><ul><li>Impact of the terrorist threat on best practices for corporate crisis management, security, and disaster recovery, and business continuity </li></ul></ul><ul><ul><li>The evolution of new, inter-organizational relationships necessary for preparedness and response to terrorism. </li></ul></ul>
  10. 10. Methodology <ul><li>Selection of Companies </li></ul><ul><li>Collection of Data </li></ul><ul><li>Analysis of Data </li></ul><ul><li>Presentation of Results </li></ul>
  11. 11. Selection of Companies www.tenantwise.com GOAL: To sort through the thousands of companies that had been directly affected by the attacks in order to formulate a list of between 20 and 25 companies to be studied
  12. 12. Selection Criteria <ul><li>Sustained a direct impact in the attacks </li></ul><ul><li>Publicly traded </li></ul><ul><li>Could not be classified as a ‘small’ business </li></ul><ul><li>Maintained at least one additional office, outside the impacted area </li></ul><ul><li>Maintained a significant level of operation in the impacted area </li></ul><ul><li>Headquarters within the United States </li></ul><ul><li>Financial Information available </li></ul>
  13. 13. Selected Companies <ul><li>23 selected for study </li></ul><ul><li>Total number of worldwide employees ranged from 231 – 443,808 </li></ul><ul><li>Annual revenues ranged from $279 million to $17 billion </li></ul>
  14. 14. The value of a public corporation is its market capitalization – the total value of its publicly held stock.
  15. 15. Stock Data Collection Process <ul><li>Historical Stock Prices – 3 years of data </li></ul><ul><ul><li>Starting Date: March 10, 2000 </li></ul></ul><ul><ul><li>Midpoint: September 11, 2001 </li></ul></ul><ul><ul><li>End Date: March 11, 2003 </li></ul></ul><ul><li>Challenges </li></ul><ul><ul><li>Cleaning </li></ul></ul><ul><ul><li>Standardization </li></ul></ul><ul><ul><li>Data gaps </li></ul></ul>
  16. 16. Results <ul><li>Company 30, Fast Recovery Example </li></ul>
  17. 17. Results <ul><li>Company 33, Non-Recovery Example </li></ul>
  18. 18. Results <ul><li>Ranked Average change in Stock price between 3/10/2000 and 3/11/2003 (whole period) </li></ul>
  19. 19. Results <ul><li>Ranked Average change in Stock price between 9/11/2001 and 3/11/2003 (post 911) </li></ul>
  20. 20. Results <ul><li>Number of consecutive days of negative change in stock price, post 9/11/2001 (initial recovery) </li></ul>
  21. 21. Analysis <ul><li>Stock Beta values </li></ul>
  22. 22. Results <ul><li>Stock Beta values before and after 9/11/2001. </li></ul>
  23. 23. Preliminary Findings <ul><li>9/11 events inflicted severe and immediate physical impacts to all businesses, government offices, and other organizations located in and around the WTC complex. </li></ul><ul><li>Affected companies needed to manage, primarily by themselves, an event that involved dead, injured, missing, physically displaced and traumatized employees, losses of data, information, and institutional knowledge, and an unprecedented uncertainty in market behavior. </li></ul>
  24. 24. For the vast majority of large, publicly traded companies directly impacted by the WTC attacks, it appears that the bulk of financial impacts were absorbed by the markets/industries rather than the individual companies themselves and therefore transferred quickly to the economy as a whole.
  25. 25. Risk behavior of the majority of companies was not altered to a significant degree by the 9/11 attacks
  26. 26. There have emerged implications showing that there exist mechanisms to absorb or transfer severe economic and financial impacts of large-scale disasters affecting large businesses.
  27. 27. Next Tasks <ul><li>Determine what caused discrepancies between the outliers, and confirm our findings regarding market absorption of financial loss, </li></ul><ul><li>Investigate strategic impact on corporations not directly impacted by WTC attack (20-25 companies) and compare with sample companies. </li></ul><ul><ul><li>Personal Interviews (40-60) </li></ul></ul><ul><ul><li>Surveys (150) </li></ul></ul>
  28. 28. ICDRM What was in place? What was improvised? How was it used? How did it work? What was learned? What was modified or changed? Pre Event Response/ Post Event Recovery Framework for Analysis of Strategic Impacts Revised Corporate Strategy Investments in preparedness
  29. 29. Expected Results Unique evaluation of financial impacts of WTC attacks on large corporations. Evaluation of corporate preparedness, disaster recovery and business continuity strategies Procedures, and technology. Better understanding of impact of extreme events on corporate strategy, plans, and investment.
  30. 30. Questions? References for used Images: satellite.jpg - http://256.com/gray/thoughts/2001/20010912/pictures/ newyork.jpg - http://www.allposters.com/gallery.asp?aid=426124&item=337506 P1010018.jpg, P1010021.jpg - www.sikh.net/AOA/wtcpics.htm alive.jpg, search3.jpg http://economics.wustl.edu/~e110em/disaster/ IM001017.jpg - http://www.markallencam.com/nycblowup.html before007.jpg - http://groundzero.nyc.ny.us/photos/before/before007.html image002.jpg - http://www.twin-towers.net/before.htm For additional information contact John R. Harrald at [email_address] , (202) 994-7153 www.gwu.edu/~icdrm
  31. 31. Analysis <ul><li>Daily Percent Changes in stock price with respect to March 10 th , 2000 </li></ul>
  32. 32. Analysis <ul><li>Daily percent changes in stock price with respect to September 11 th , 2001. </li></ul>