The Impact of the Catastrophe on the Stock Market and the Industry Supply Chain – The Case of Japan Earthquake 311

[[abstract]]This study aims to empirically investigate Taiwan stock market reaction to Japan Earthquake 2011, which is a powerful 9.0 magnitude quake. By adopting the event-study, we estimate whether the industries will experience abnormal returns, the financial ratio factors will be related to the abnormal returns as well as the effect of semi-conductor supply chain. As the empirical results suggest that the abnormal returns occur in the stock market due to the earthquake-related damage, which cause the industry supply chain disruptions. The size of abnormal returns is different with various industry classification and corporate financial ratios. According to cumulative abnormal returns of the industries, the electrical machinery industry’s stock market reacts quickly, which is consistent with the semistrong-form efficient market hypothesis. Whereas, cement industry & iron and steel industry’s experience significant abnormal returns and last even 5 days after the event day, which doesn’t conform to the semistrong-form efficient market hypothesis. In addition, the relation of financial ratios and the average cumulative abnormal returns, not all the financial ratios are correlated to the abnormal returns. The ratio of “Return on Total Assets” has significant and positive correlation to semi-conductor industry’s cumulative average abnormal returns （CAR）; the natural log of “Total Assets” is significantly and negatively related to CAR for semi-conductor industry and electrical machinery industry ; “Debt Ratio” is significantly and negatively correlated to CAR for cement industry & iron and steel industry ; “Current Ratio”,“Inventory Turnover Ratio” and “Times Interest Earned” are not significant relevant with CAR for any industries. Furthermore, as for the reaction of semi-conductor supply chain to the catastrophe, we find the stock reactions of affected firms and customers are negative significantly. This result suggests that there is a contagion effect along the supply chain