When does the manufacturing reshoring strategy create value?

Reshoring has gained a lot of attention recently by academics and practitioners alike, and is promising to become even more relevant in the aftermath of the COVID-19 pandemic. Building on earlier research on the effects of reshoring announcements on the short-term market value of the firm, this work employs an event-study methodology and aims to understand under which circumstances the market perceives reshoring as potentially more (or less) value-creating. The analysis of a sample of 64 reshoring instances from 2005 to 2019, announced by 54 firms from eight developed economies, suggests that investors are more confident in the firm's future cash-flow potential when: a) it invests in productive activities at home, instead of overseas, i.e. 'kept-from-offshoring' (as opposed to actual relocations of activities, i.e. 'back-reshoring'); b) the reshoring instance is communicated as a 'plan' (rather than a fixed 'decision'); c) no state- or government-induced financial incentives are involved; d) the motivations are primarily 'cost-efficiency seeking' (rather than 'customer perceived value seeking').

Automated summary

This work analyzes 64 reshoring instances announced by 54 firms from eight developed economies between 2005 and 2019, using an event-study methodology. The findings suggest that investors have more confidence in a firm's future cash-flow potential when the firm invests in domestic productive activities, communicates reshoring as a plan, does not involve state- or government-induced financial incentives, and is primarily motivated by cost-efficiency seeking.