Examining the impact of reshoring initiatives on shareholder wealth of its domestic suppliers

Abstract

Recent global disruptions have exposed the vulnerabilities of international supply chains, fueling a growing trend toward reshoring. While the existing literature largely focuses on the impact of reshoring on focal companies, limited attention has been paid to its financial consequences for domestic suppliers. This study seeks to fill this gap by examining how reshoring initiatives affect the shareholder wealth of domestic suppliers in the United States manufacturing sector. Drawing on Transaction Cost Economics (TCE), we find that reshoring leads to negative financial outcomes for domestic suppliers due to increased transaction costs, heightened asset specificity, and vulnerability to opportunism. We further demonstrate that supplier dependence, industry competition, and financial constraints exacerbate these adverse effects. However, mutual dependence between domestic suppliers and reshoring companies mitigates the negative consequences observed. Our study contributes to the reshoring literature by extending the focus beyond focal companies to include the overlooked financial implications for domestic suppliers, offering new insights into the complexity of supply chain relationships through the lens of TCE.