The Performance Narrative of Vertical Dis-Integration

The purpose of this paper is to gain deeper insights into the link between vertical integration and a firm’s stock market performance. Therefore, we investigate the relationship between vertical integration and long term stock returns by comparing abnormal returns of stock portfolios sorted by their degree of vertical integration. The study is based on data from 2,787 European manufacturing firms from 1993 to 2015 with 19,580 firm-year observations. We observe a strategic shift in vertical integration during the recent financial crisis, i.e. portfolios consisting of firms with a low degree of vertical integration have the highest stock returns before the onset of the recent financial crisis (1993-2007) whereas highly integrated firms performed best after the onset of the crisis (2007-2015). Furthermore, highly integrated firms have suffered less during the financial crisis compared to other firms. Our results are robust to firm characteristics well-known as drivers of abnormal stock returns. Further analy...