Stock market reactions to firms’ recall strategies

• Main Authors: Tien-JiChang, 張天磯
• Other Authors: Shao-Chi Chang
• Format: Others
• Language: en_US
• Published: 2010
• Online Access: http://ndltd.ncl.edu.tw/handle/00760182021260981918

碩士 === 國立成功大學 === 國際企業研究所碩博士班 === 98 === Product-harm crises continue to increase in past years, and result in more and more product recall events. Because product recalls affect reputation, sales, and financial value, firms should be careful in dealing with potential damages of product recalls. Managers who face product recalls may take different strategies. Those strategies may affect consumers’ attitude and market reaction differently. In this study, we try to find whether investors consider different recall strategies at various level of damage. We follow Smiokos and Kurzbard’s (1994) definition to categorize firms’ response into four recall strategies; then we examine market reactions to product recalls for each strategy. Moreover, we test if recall strategies have persistent effects, since firms’ strategies will influence consumers’ behavior and firms’ future revenues. We find that investors have more positive reactions to firms’ voluntary recall than involuntary recall. However, the advantage of voluntary recall strategy is not persistent. According to our research, there is no significant difference between voluntary recall and involuntary recall in long-run. According to our sample, we find that market reactions of denial tend to be negative. On the contrary, investors react to the improvement campaign positively.