Product Recalls and Firm Reputation

2021 ◽  
Vol 13 (3) ◽  
pp. 404-442
Author(s):  
Boyan Jovanovic
Keyword(s):  
Product Quality ◽  
Firm Value ◽  
Stock Price ◽  
Policy Intervention ◽  
Product Recalls ◽  
Product Recall ◽  
Product Price ◽  
Firm Reputation ◽  
Recall Data ◽  
Product Defect

Product recall data and information on stock price reactions to recalls are used to estimate the value of reputation in a model in which product quality is not contractible. A recall is the result of a product defect that signals low effort. The recall triggers a reduction in the firm’s product price and value, which then both rise steadily until its next defect occurs. We estimate that reputation accounts for 8.3 percent of firm value and that welfare is 26 percent of its first best level. A policy intervention that attains first best is a recall tax accompanied by a flow subsidy. (JEL D22, G32, H25, L25, L62, M31)

Labor Unions and Product Quality Failures

2021 ◽  
Author(s):  
Omesh Kini ◽  
Mo Shen ◽  
Jaideep Shenoy ◽  
Venkat Subramaniam
Keyword(s):  
Product Quality ◽  
Labor Unions ◽  
Product Recalls ◽  
Employee Morale ◽  
Product Recall ◽  
Quality Outcomes ◽  
Panel Regressions ◽  
Broad Cross Section ◽  
Operating Leverage ◽  
The Impact

In this paper, we study the impact of labor unions on product quality failures. We use a product recall as our measure of quality failure because it is an objective metric that is applicable to a broad cross-section of industries. Our analysis employs a union panel setting and close union elections in a regression discontinuity design framework to overcome identification issues. In the panel regressions, we find that firms that are unionized and those that have higher unionization rates experience a greater frequency of quality failures. The results obtain even at a more granular establishment level in a subsample in which we can identify the manufacturing establishment associated with the recalled product. When comparing firms in close elections, we find that firms with close union wins are followed by significantly worse product quality outcomes than those with close union losses. These results are amplified in non–right-to-work states, where unions have a relatively greater influence on the workforce. We find that unionization increases firms’ costs and operating leverage and, consequently, crowds out investments that potentially impact quality. We also find some suggestive evidence that unions may compromise quality by hurting employee morale and by resisting technological upgrades in the firm. Overall, our results suggest that unions have an adverse impact on product recalls, and thus, product quality is an important dimension along which unions impact businesses. This paper was accepted by Gustavo Manso, finance.

scholarly journals The more I err, the less I pay

2019 ◽  
Vol 53 (5) ◽  
pp. 916-943 ◽  
Author(s):  
Etayankara Muralidharan ◽  
Hari Bapuji ◽  
Manpreet Hora
Keyword(s):  
Future Research ◽  
Published Data ◽  
Product Recalls ◽  
Firm Characteristics ◽  
Product Recall ◽  
Product Complexity ◽  
Firm Reputation ◽  
Content Type ◽  
The Us ◽  
Toy Industry

Purpose This study aims to investigate the effects of firm characteristics and crisis characteristics on remedies offered to consumers by firms in the event of a product recall crisis. Design/methodology/approach Published data on 868 product recalls in the US toy industry from 1988 to 2011 have been used to investigate the effects of firm experience in product recalls, type of firm (company versus intermediary) and product recall severity in predicting remedies offered to consumers in the event of a product recall. Findings The findings show that firm recall experience, firm type and recall severity are negatively associated with recall remedies offered. Specifically, firms offer lower remedies if they have higher recall experience, if they are upstream firms in the supply chain (farther from consumers) and if the recall is more severe. Research limitations/implications This study focuses on the toy industry and does not consider product complexity, firm reputation and the role of external regulatory agencies in the prediction of remedies offered by firms. Future research may extend this study to include the above factors. Practical implications Offering a high remedy to consumers of a recalled product may be a responsible decision by a firm, but it may also attract shareholder wrath. The study has implications for managing multiple goals in product recall crisis management. Originality/value Studies focused on issues of interest to consumers during a recall crisis, such as swift recalls and appropriate remedies, are limited. This study contributes to the understanding of the antecedents of recall remedies.

Impact of Automobile Recalls on Stock Prices: A Study in the Indian Context

2017 ◽  
Vol 19 (2) ◽  
pp. 407-423 ◽  
Author(s):  
Jagandeep Singh
Keyword(s):  
Stock Returns ◽  
Stock Prices ◽  
Stock Price ◽  
Abnormal Returns ◽  
Product Recalls ◽  
Product Recall ◽  
Event Window ◽  
Indian Context ◽  
Significant Difference ◽  
The Impact

Not so long ago, ‘product recalls’ in the Indian automobile sector were a novelty. The defective vehicles were repaired as part of the after-sales service. In the absence of a strong regulatory framework, the manufacturers were under no obligation to proactively initiate product recalls. The introduction of a voluntary code on product recalls by the Society of Indian Automobile Manufacturers (SIAM) in 2012 and introduction/amendments in the existing legal regimen of the country in recent years have led companies to take more than just baby steps towards product recalls. Product recalls are a case of management failure. There is a need for gauging the impact of this failure on the stock price of the manufacturers, especially in the Indian context where the recall phenomenon is poised to gain further momentum. The event study methodology is a widely used approach to assess the impact of a particular event/announcement on the stock price. This methodology was used in the present study to gauge whether abnormal stock returns accrued to the manufacturers during 13 product recall announcements made in the Indian automobile sector between 1 January 2010 and 31 December 2015. The study found that product recall announcements generated small and statistically insignificant cumulative abnormal returns (CAR) of –0.02 per cent in the (–1, +1) event window, 0.92 per cent in the (–2, +2) event window and 1.70 per cent in the (–5, +5) event window. The study found no substantial or statistically significant difference in the CAR generated during big recalls and small recalls. Furthermore, the study found little evidence that CAR generated during recalls where defective component(s) in the vehicle were repaired is positive as compared to CAR generated when such component(s) were replaced.

Consumers iews on text characteristics of product recall notices

2001 ◽  
Vol 2 (3) ◽  
pp. 258-271 ◽  
Author(s):  
Marinel Gerritsen ◽  
Frank van Meurs ◽  
Wendy Diepstraten
Keyword(s):  
Product Recalls ◽  
Product Recall ◽  
Likert Scales ◽  
Product Defect ◽  
Insight Into ◽  
Oriented Approach

Consumers who have suffered as a result of a product defect can claim compensation from the producer. By placing a product recall notice, producers can reduce their liability. Ideally, such a notice should protect the image of the company as well as warn consumers. The problem is that a clear warning may damage the image of the company that placed the notice. This study reports on experiments carried out among 128 female shoppers to gain insight into how a recall notice should be worded in order to protect the company’s image and, yet to be clear. Split-run tests were carried out to determine whether Minimisation (minimising the danger of the defect) and Bolstering (stressing the company’s good traits) contributed positively to the image of the company and whether inclusion of pictures, a list format, a reader-oriented approach, Minimisation, and Bolstering contrib- uted positively to the clarity of the notice. Likert scales were used to determine which heading drew most attention and through which channels consumers prefered to be informed about a product recall. According to our respondents, a recall notice including Minimisation strategies protects the company’s image more than one without such strategies. A recall notice is consid- ered clearer when it includes a picture, when it contains elements to highlight the structure of the information, and when it does not include Bolstering. According to our respondents, the most attention-grabbing heading is ‘Waarschuwing’ warning), and they prefer to be informed about product recalls through newspapers and television.

Firm/product reputation and new-product recalls

2018 ◽  
Vol 36 (5) ◽  
pp. 572-584
Author(s):  
Kashef Majid ◽  
Mooweon Rhee
Keyword(s):  
Negative Impact ◽  
New Products ◽  
Hierarchical Linear Model ◽  
New Product ◽  
Market Response ◽  
Product Recalls ◽  
Product Recall ◽  
Firm Reputation ◽  
Content Type ◽  
Simultaneous Impact

Purpose The purpose of this paper is to identify the rate of recall for new products vs established products and to explore the simultaneous impact of a firm’s reputation and a product’s reputation on the market response to a product recall. Design/methodology/approach The authors first use an accelerated hazard model to establish that new products are more vulnerable to damage than established products. Once this is established, the authors use a hierarchical linear model to explore the simultaneous impact of the firm and product reputation on the market response to a product recall. Findings The findings indicate that new products have a greater probability of recall over time than existing products and after a product recall a positive firm reputation can negatively impact the firm and hence becomes a liability. However, when the product is first introduced, the product reputation can help offset any negative market response; the product reputation can therefore be an asset. Research limitations/implications New products are more flawed than their established counterparts. A positive reputation can be a liability but a positive product reputation can offset the negative impact of the firm reputation and this is especially pertinent to new products. Originality/value The majority of prior research has focused on the reputation and assumed that the firm represented the product as well; the findings of this study reveal that the reputation of the product can have contrasting effects to the reputation of the firm.

Pengaruh Intellectual Capital, Profitabilitas, Dan Leverage Terhadap Nilai Perusahaan Pada Perusahaan Sektor Properti, Real Estate, Dan Konstruksi Bangunan Yang Terdaftar Di Bursa Efek Indonesia

2018 ◽  
Vol 9 (2) ◽  
pp. 1-14
Author(s):  
Haryani Chandra ◽  
Hamfri Djajadikerta
Keyword(s):  
Real Estate ◽  
Intellectual Capital ◽  
Firm Value ◽  
Stock Price ◽  
Stock Exchange ◽  
Value Added ◽  
Simple Random Sampling ◽  
Positive Influence ◽  
Public Companies ◽  
Equity Ratio

Go public companies have main purpose to increase firm value consistently. Increased firm value can reflect the increase in the prosperity of shareholders. The purpose of this research is to determine whether intellectual capital, profitability, and leverage have an influence on firm value. This research is expected to help companies to determine the focus on managing the factors those have an influence towards firm value and help investors and potential investors to make investment decisions. This research is conducted on firms listed in property, real estate, and building construction sector in Indonesia Stock Exchange during 2010 until 2015. Samples are selected by simple random sampling method. The research method used is the regression analysis. Intellectual capital is measured by value added intellectual coefficient (VAIC), profitability is measured by return on assets (ROA), leverage is measured by debt- to-equity ratio (DER), and firm value is measured by the year-end closing stock price. The results showed that intellectual capital, profitability, and leverage have partially a significant positive influence on firm value. In addition, intellectual capital, profitability, and leverage have significant influence simultaneously on firm value. Keywords: firm value, intellectual capital, leverage, profitability

“De terughaalactie geld alleen voor de hierboven afgebelede pizza’s geldig.”

2015 ◽  
Vol 43 (3) ◽  
Author(s):  
Mariet Raedts ◽  
Irene Roozen
Keyword(s):  
Negative Impact ◽  
Purchase Intentions ◽  
The Other ◽  
Product Recalls ◽  
Negative Consequences ◽  
Product Recall ◽  
Brand Evaluations ◽  
Different Types

Consumers’ responses to product recalls with language errors Consumers’ responses to product recalls with language errors Product recall notices not only warn consumers for faulty products, they also limit the damage which may be caused to the company. But what happens when the product recall notice itself contains errors? This study investigated the effects of three different types of language errors: typographical errors, verb errors and sentence errors. Four versions of a product recall were created. The control condition contained no errors. The other three versions contained either five typos, five grammatical conjugation errors or five poorly formed sentences. Participants (N = 710) were randomly assigned to one of the four conditions. Results indicate that participants who detected the errors, had lower attitudes towards the advertisement and the company than participants in the control condition and participants who failed to detect the errors. Poorly formed sentences also had a negative impact on consumers’ brand evaluations and their future product purchase intentions. Hence, language errors in product recall notices can have negative consequences for companies.

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