Shareholder response to mass shootings in the United States firearms industry

Abstract

Mass shootings are an all too common event in the United States. While these tragedies are universally condemned, the extent to which they affect markets is less understood. Using event study methodology, this study analyzes how three publicly traded small arms companies, Smith & Wesson, Sturm Ruger, and the Brazilian manufacturer Taurus, react in the aftermath of six mass shootings from 2007 to 2013. Taurus is included in the sample given its heavy dependence on the US market, as well as to increase sample size given the dearth of publicly traded arms companies worldwide. The aggregate results suggest that these events do significantly disrupt returns in the arms industry, suggesting that shareholders are influenced by these events. The evidence for market disruptions is particularly strong when the sample is limited to the deadliest Virginia Tech and Sandy Hook shootings.

Keywords:

• firearms companies
• mass shooting
• event study
• abnormal returns
• multifactor model

Public Interest Statement

While mass shootings are universally condemned, the extent to which they affect markets is less understood. Do these events persuade arms company shareholders to sell based on the prospect of stricter gun control legislation or ethical disapproval? Or rather, do they rally the formidable pro-gun lobby to stick to their guns and counter legislation that infringes upon constitutional rights guaranteed by the Second Amendment, possibly buoying shareholder confidence? This research is the first to apply an event study methodology to assess the market’s reaction to mass shootings. By analyzing how publicly traded small arms companies react in the aftermath of six mass shootings in the United States from 2007 to 2013, it finds that these events have little impact on generating abnormal market returns for individual firms. However, when companies and mass shootings are considered collectively, results suggest that these events may significantly disrupt returns in the arms industry.

Notes

1. One of the nation’s largest pension funds divested itself from firearm holdings for ethical reasons: https://www.nytimes.com/2013/01/10/business/california-teachers-fund-to-divest-of-gun-stock.html

2. The vast majority of these killings were shootings. The FBI defines a mass killing as the death of 4 victims, not including the perpetrator https://www.fbi.gov/stats-services/publications/serial-murder/serial-murder-1#two. The numbers of killings are largely based on the FBI’s Supplemental Homicide Reports from 2006 to 2011. USA Today used local media reports and official records for 2012- 2013 www.usatoday.com/story/news/nation/2013/09/16/mass-killings-data-map/2820423.

3. Descriptions attributed to aforementioned USAToday article.

4. Daily stock prices for Ruger and Smith & Wesson were obtained though Yahoo! Finance. Historical prices for the Taurus, S&P500, IBOVESPA, as well as exchange rates were obtained through Economatica.

5. Rankings from www.shootingindustry.com/u-s-firearms-industry-today-2012/.

6. Brown and Warner use the term “excess returns” in place of "abnormal returns" and conclude that the OLS market model outperforms simpler Mean Adjusted Returns and exhibit similar power and specification characteristics of more complicated procedures, such as Sholes-Williams and Dimson.

7. Taurus’s beta coefficient, relative to the S&P 500 and IBOVESPA market indices were 0.57 and 0.58 respectively, from 29 March, 2006 until 31 December 2013, (T = 1954 and 1911 observations. Both p-values = 0.00). These results imply movements in the price of Taurus stocks were just as correlated with the US market as with its own domestic market.

8. Calculations are based on the first day markets had the opportunity to react to the news of the shooting.

Additional information

Funding

Funding. The authors received no direct funding for this research.

Notes on contributors

Geoffrey Steeves

Geoffrey Steeves earned his PhD in economics while studying as an Olmsted Scholar, a United States Department of Defense exchange program, in southern Brazil. He maintains an affiliation with the Economics Department at the Federal University of Santa Catarina where he continues to collaborate with colleagues, including Newton da Costa Jr., to explore patterns, perceptions and effects of violence in Brazil and the United States. Armed violence continues to exact a great toll on these nations.  This research endeavors to develop methods and provide insights to understand more clearly the burden armed violence imposes on society.

Newton da Costa

Newton da Costa Jr. is a full professor in the Economics Department at Federal University of Santa Catarina in Brazil. He holds a PhD in Business Administration from Getulio Vargas Foundation, and was a Fulbright visiting scholar at Columbia Business School (1999-00). He has been an associate editor of the Brazilian Journal of Finance since 2006. His main areas of interest are in behavioral and experimental finance.