ICDRM

Assessing the Financial Impacts of the World Trade Center Attacks On Publicly-Held Corporations

The Institute for Crisis, Disaster and Risk Management

ICDRM

• Background• Company Selection

Process• Stock Data Collection

Process• Display Products

(Charts and Diagrams)• Preliminary Conclusions• Upcoming Project Tasks

Outline

ICDRM

September 11, 2001

• 19 terrorists hijacked 4 aircraft for suicide attacks

• Almost 3000 people killed

• In Manhattan: - 34.5 million ft2 office space lost

- $50-70 billion in insured losses

Most of these direct economic losses were incurred by the private sector

ICDRM

September 11, 2001

The WTC burning… The twin towers collapsed…

ICDRM

Terrorist Groups are Targeting U.S. And World Economy

“The settlement of this overburdened account will indeedbe heavy. We will also aim to continue, by permission of Allah, the destruction of the American economy.”

Ayman Al-Zawahiri, head of Al-Qaeda operational planning(6 October, 2002)

ICDRM

Long-Term, Overall Research Questions

1. How did the 911 attacks affect long-term economic and financial performance of corporations directly or indirectly impacted?

2. What unanticipated inter-org. adaptive responses involving large publicly held corp’s emerged during the recovery from the 9/11 attacks?

3. How have mgmnt. perceptions changed toward the req’s for investment in disaster recovery, security, and crisis mgmnt. as a result of these attacks?

4. How has the terrorist threat changed the perceived crisis mgmt, security, and disaster recovery best practices for large publicly held corporations?

5. What skills and knowledge are required for corporate crisis managers?

6. Can corporate preparedness for extreme events be evaluated based on internal and inter-organizational factors?

ICDRM

Scope of the Paper

How did the September 11 attacks affect the long-term economic and financial

performance of corporations directly or indirectly impacted?

-70.00

-60.00

-50.00

-40.00

-30.00

-20.00

-10.00

0.00

10.00

20.00

11/6/00

12/26/00

2/14/01

4/5/01

5/25/01

7/14/01

9/2/01

10/22/01

12/11/01

1/30/02

3/21/02

5/10/02

6/29/02

8/18/02

10/7/02

11/26/02

1/15/03

3/6/03

4/25/03

Date

Pe

rce

nt

Ch

an

ge

w rt 11/6/2000 w rt 9/11 11-Sep

ICDRM

Previous Research• Private sector impacts have not been the subject of significant, in-depth

research• General lack of data and models describing impacts at

corporate/organizational level• Focus on small businesses (Alesch, Webb, Tierney)• Tied to particular events for specific companies

(Knight and Pretty)– Everglades Air Crash, ValuJet, 1996– Tylenol Poisoning, J&J, 1982– Bhopal Gas Leak, Union Carbide, 1984– Norco Explosion, Shell Oil, 1988– Lockerbie Air Crash– Alaskan Oil Pollution, Exxon Valdez, 1989

ICDRM

Previous Research, Cont’d• Provide valuable baseline for research

• Do not adequately address critical issues of 9/111. Long term effect of extreme events on large, publicly held

corporations

2. Effectiveness of pre-planned and professional corporate crisis management and disaster recovery activities on the long-range economic impact

3. Impact of the terrorist threat on best practices for corporate crisis management, security, and disaster recovery, and business continuity

4. The evolution of new, inter-organizational relationships necessary for preparedness and response to terrorism.

ICDRM

Methodology

• Selection of Companies

• Collection of Data

• Analysis of Data

• Presentation of Results

ICDRM

Selection of Companies

www.tenantwise.com

GOAL: To sort through the thousands of companies that had been directly affected by the attacks in order to formulate a list of

between 20 and 25 companies to be studied

ICDRM

Selection Criteria

• Sustained a direct impact in the attacks

• Publicly traded

• Could not be classified as a ‘small’ business

• Maintained at least one additional office, outside the impacted area

• Maintained a significant level of operation in the impacted area

• Headquarters within the United States

• Financial Information available

ICDRM

Selected Companies

• 23 selected for study

• Total number of worldwide employees ranged from 231 – 443,808

• Annual revenues ranged from $279 million to $17 billion

ICDRM

The value of a public corporation is its market capitalization – the total value of its publicly held

stock.

ICDRM

Stock Data Collection Process

• Historical Stock Prices – 3 years of data– Starting Date: March 10, 2000– Midpoint: September 11, 2001– End Date: March 11, 2003

• Challenges– Cleaning– Standardization– Data gaps

ICDRM

Results • Company 30, Fast Recovery Example

ICDRM

Results • Company 33, Non-Recovery Example

ICDRM

Results• Ranked Average change in Stock price between

3/10/2000 and 3/11/2003 (whole period)

ICDRM

Results• Ranked Average change in Stock price between

9/11/2001 and 3/11/2003 (post 911)

ICDRM

Results• Number of consecutive days of negative change in

stock price, post 9/11/2001 (initial recovery)

ICDRM

Analysis• Stock Beta values

Index Change

for Stock Beta

Stock Change

for Stock Beta

Stock Beta 60 pri 9-11

X Y

-0.003671 0.002610 1.473275

-0.000361 0.046330 1.477889

-0.010239 0.007338 1.431617

-0.011708 -0.010372 1.440429

-0.009015 -0.003119 1.423795

-0.006487 -0.014643 1.421400

0.003928 0.006097 1.429084

-0.004261 -0.005934 1.423007

-0.010961 -0.013462 1.395666

-0.018623 -0.018538 1.368312

-0.020678 -0.033972 1.371687

0.002580 0.023082 1.379688

-0.048947 -0.089184 1.501673

-0.001574 -0.027393 1.506270

-0.015514 0.000150 1.494916

-0.036994 -0.026064 1.397560

-0.014614 0.029529 1.281202

0.048754 0.041679 1.171881

0.015157 -0.006884 1.130375

0.006868 -0.002455 1.122311

0.017176 -0.013607 1.067492

0.025601 0.035515 1.116787

-0.002250 0.030045 1.117167

0.013265 0.001376 1.117982

0.015998 0.042045 1.153415

-0.009355 0.030063 1.130586

ICDRM

Results• Stock Beta values before and after 9/11/2001.

ICDRM

Preliminary Findings• 9/11 events inflicted severe and immediate

physical impacts to all businesses, government offices, and other organizations located in and around the WTC complex.

• Affected companies needed to manage, primarily by themselves, an event that involved dead, injured, missing, physically displaced and traumatized employees, losses of data, information, and institutional knowledge, and an unprecedented uncertainty in market behavior.

ICDRM

For the vast majority of large, publicly traded companies directly impacted by the WTC attacks, it appears that the bulk of financial impacts were

absorbed by the markets/industries rather than the individual companies themselves and therefore transferred quickly to the economy as a whole.

ICDRM

Risk behavior of the majority of companies was not altered to a

significant degree by the 9/11 attacks

ICDRM

There have emerged implications showing that there exist mechanisms to absorb or transfer severe economic and

financial impacts of large-scale disasters affecting large businesses.

ICDRM

Next TasksDetermine what caused discrepancies between the outliers, and confirm our findings regarding market absorption of financial loss,

Investigate strategic impact on corporations not directly impacted by WTC attack (20-25 companies) and compare with sample companies.

•Personal Interviews (40-60)

•Surveys (150)

ICDRM

What wasin place?

What wasimprovised?

How wasit used?

How did it work?

What waslearned?

What was modified orchanged?

Pre Event Response/ Post Event Recovery

Framework for Analysis of Strategic Impacts

Revised Corporate Strategy

Investments in preparedness

ICDRM

Expected Results

Unique evaluation of financial impacts of WTC attacks on large corporations.

Evaluation of corporate preparedness, disaster recovery and business continuity strategies Procedures, and technology.

Better understanding of impact of extreme eventson corporate strategy, plans, and investment.

ICDRM

Questions?

References for used Images:

satellite.jpg - http://256.com/gray/thoughts/2001/20010912/pictures/

newyork.jpg - http://www.allposters.com/gallery.asp?aid=426124&item=337506

P1010018.jpg, P1010021.jpg - www.sikh.net/AOA/wtcpics.htm

alive.jpg, search3.jpg http://economics.wustl.edu/~e110em/disaster/

IM001017.jpg - http://www.markallencam.com/nycblowup.html

before007.jpg - http://groundzero.nyc.ny.us/photos/before/before007.html

image002.jpg - http://www.twin-towers.net/before.htm

For additional information contactJohn R. Harrald at jharrald@gwu.edu, (202) 994-7153www.gwu.edu/~icdrm

ICDRM

Analysis

• Daily Percent Changes in stock price with respect to March 10th, 2000

GS % change GS % change ^DJUSFN % change ^DJUSFN % change GS-^DJUSFN

Date GS wrt 3/10/2000 wrt 9/11/2001 ^DJUSFN wrt 3/10/2000 wrt 9/11/2001 Difference wrt 3/10/2000

9/4/2001 78.74 0.000000 399.60 0.000000 0.000000

9/5/2001 77.68 -1.346203 395.22 -1.096096 -0.250107

9/6/2001 76.24 -3.175006 387.86 -2.937938 -0.237068

9/7/2001 73.65 -6.464313 379.84 -4.944945 -1.519368

9/10/2001 75.35 -4.305309 0.000000 380.82 -4.699700 0.000000 0.394391

9/17/2001 68.63 -12.839726 -8.918381 362.18 -9.364364 -4.894701 -3.475361

9/18/2001 66.75 -15.227330 -11.413404 361.61 -9.507007 -5.044378 -5.720323

9/19/2001 66.76 -15.214630 -11.400133 356.00 -10.910911 -6.517515 -4.303720

9/20/2001 65.02 -17.424435 -13.709356 342.83 -14.206707 -9.975842 -3.217728

9/21/2001 66.94 -14.986030 -11.161248 337.82 -15.460460 -11.291424 0.474430

9/24/2001 69.73 -11.442723 -7.458527 354.29 -11.338839 -6.966546 -0.103884

9/25/2001 69.25 -12.052324 -8.095554 359.66 -9.994995 -5.556431 -2.057329

ICDRM

Analysis

• Daily percent changes in stock price with respect to September 11th, 2001.

GS % change GS % change ^DJUSFN % change ^DJUSFN % change GS-^DJUSFN

Date GS wrt 3/10/2000 wrt 9/11/2001 ^DJUSFN wrt 3/10/2000 wrt 9/11/2001 Difference wrt 9/11/2001

9/4/2001 78.74 0.000000 399.60 0.000000

9/5/2001 77.68 -1.346203 395.22 -1.096096

9/6/2001 76.24 -3.175006 387.86 -2.937938

9/7/2001 73.65 -6.464313 379.84 -4.944945

9/10/2001 75.35 -4.305309 0.000000 380.82 -4.699700 0.000000 0.000000

9/17/2001 68.63 -12.839726 -8.918381 362.18 -9.364364 -4.894701 -4.023680

9/18/2001 66.75 -15.227330 -11.413404 361.61 -9.507007 -5.044378 -6.369026

9/19/2001 66.76 -15.214630 -11.400133 356.00 -10.910911 -6.517515 -4.882618

9/20/2001 65.02 -17.424435 -13.709356 342.83 -14.206707 -9.975842 -3.733515

9/21/2001 66.94 -14.986030 -11.161248 337.82 -15.460460 -11.291424 0.130176

9/24/2001 69.73 -11.442723 -7.458527 354.29 -11.338839 -6.966546 -0.491981

9/25/2001 69.25 -12.052324 -8.095554 359.66 -9.994995 -5.556431 -2.539123