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Assessing the Financial Impacts of the World Trade Center Attacks On Publicly-Held Corporations

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Title: Assessing the Financial Impacts of the World Trade Center Attacks On Publicly-Held Corporations


1
Assessing the Financial Impacts of the World
Trade Center Attacks On Publicly-Held Corporations
ICDRM
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
2
Outline
  • Background
  • Company Selection Process
  • Stock Data Collection Process
  • Display Products (Charts and Diagrams)
  • Preliminary Conclusions
  • Upcoming Project Tasks

3
September 11, 2001
  • 19 terrorists hijacked 4 aircraft for suicide
    attacks
  • Almost 3000 people killed
  • In Manhattan - 34.5 million ft2 office space
    lost
  • - 50-70 billion in insured losses
  • Most of these direct economic losses were
    incurred by the private sector

4
September 11, 2001
The WTC burning
The twin towers collapsed
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
Long-Term, Overall Research Questions
  • How did the 911 attacks affect long-term economic
    and financial performance of corporations
    directly or indirectly impacted?
  • What unanticipated inter-org. adaptive responses
    involving large publicly held corps emerged
    during the recovery from the 9/11 attacks?
  • How have mgmnt. perceptions changed toward the
    reqs for investment in disaster recovery,
    security, and crisis mgmnt. as a result of these
    attacks?
  • How has the terrorist threat changed the
    perceived crisis mgmt, security, and disaster
    recovery best practices for large publicly held
    corporations?
  • What skills and knowledge are required for
    corporate crisis managers?
  • Can corporate preparedness for extreme events be
    evaluated based on internal and
    inter-organizational factors?

7
Scope of the Paper
  • How did the September 11 attacks affect the
    long-term economic and financial performance of
    corporations directly or indirectly impacted?

8
Previous Research
  • Private sector impacts have not been the subject
    of significant, in-depth research
  • General lack of data and models describing
    impacts at corporate/organizational level
  • Focus on small businesses (Alesch, Webb, Tierney)
  • Tied to particular events for specific companies
  • (Knight and Pretty)
  • Everglades Air Crash, ValuJet, 1996
  • Tylenol Poisoning, JJ, 1982
  • Bhopal Gas Leak, Union Carbide, 1984
  • Norco Explosion, Shell Oil, 1988
  • Lockerbie Air Crash
  • Alaskan Oil Pollution, Exxon Valdez, 1989

9
Previous Research, Contd
  • Provide valuable baseline for research
  • Do not adequately address critical issues of 9/11
  • Long term effect of extreme events on large,
    publicly held corporations
  • Effectiveness of pre-planned and professional
    corporate crisis management and disaster recovery
    activities on the long-range economic impact
  • Impact of the terrorist threat on best practices
    for corporate crisis management, security, and
    disaster recovery, and business continuity
  • The evolution of new, inter-organizational
    relationships necessary for preparedness and
    response to terrorism.

10
Methodology
  • Selection of Companies
  • Collection of Data
  • Analysis of Data
  • Presentation of Results

11
Selection of Companies
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
www.tenantwise.com
12
Selection Criteria
  • Sustained a direct impact in the attacks
  • Publicly traded
  • Could not be classified as a small business
  • Maintained at least one additional office,
    outside the impacted area
  • Maintained a significant level of operation in
    the impacted area
  • Headquarters within the United States
  • Financial Information available

13
Selected Companies
  • 23 selected for study
  • Total number of worldwide employees ranged from
    231 443,808
  • Annual revenues ranged from 279 million to 17
    billion

14
The value of a public corporation is its market
capitalization the total value of its publicly
held stock.
15
Stock Data Collection Process
  • Historical Stock Prices 3 years of data
  • Starting Date March 10, 2000
  • Midpoint September 11, 2001
  • End Date March 11, 2003
  • Challenges
  • Cleaning
  • Standardization
  • Data gaps

16
Results
  • Company 30, Fast Recovery Example

17
Results
  • Company 33, Non-Recovery Example

18
Results
  • Ranked Average change in Stock price between
    3/10/2000 and 3/11/2003 (whole period)

19
Results
  • Ranked Average change in Stock price between
    9/11/2001 and 3/11/2003 (post 911)

20
Results
  • Number of consecutive days of negative change in
    stock price, post 9/11/2001 (initial recovery)

21
Analysis
  • Stock Beta values

22
Results
  • Stock Beta values before and after 9/11/2001.

23
Preliminary Findings
  • 9/11 events inflicted severe and immediate
    physical impacts to all businesses, government
    offices, and other organizations located in and
    around the WTC complex.
  • 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.

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
Risk behavior of the majority of companies was
not altered to a significant degree by the 9/11
attacks
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
Next Tasks
  • Determine what caused discrepancies between the
    outliers, and confirm our findings regarding
    market absorption of financial loss,
  • Investigate strategic impact on corporations not
    directly impacted by WTC attack (20-25 companies)
    and compare with sample companies.
  • Personal Interviews (40-60)
  • Surveys (150)

28
Framework for Analysis of Strategic Impacts
Pre Event Response/
Post Event Recovery
How was it used?
How did it work?
What was learned?
What was modified or changed?
What was in place?
What was improvised?
Revised Corporate Strategy Investments in
preparedness
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
Questions?
For additional information contact John R.
Harrald at jharrald_at_gwu.edu, (202)
994-7153 www.gwu.edu/icdrm
References for used Images satellite.jpg -
http//256.com/gray/thoughts/2001/20010912/picture
s/ newyork.jpg - http//www.allposters.com/gallery
.asp?aid426124item337506 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 before0
07.jpg - http//groundzero.nyc.ny.us/photos/before
/before007.html image002.jpg - http//www.twin-tow
ers.net/before.htm
31
Analysis
  • Daily Percent Changes in stock price with respect
    to March 10th, 2000

32
Analysis
  • Daily percent changes in stock price with respect
    to September 11th, 2001.
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