The financial impact of product recall announcements in China

Xiande Zhao (First Author), Yina Li (Participant Author), Barbara B. Flynn (Participant Author)

Research output: Contribution to journalJournal

58 Citations (Web of Science)

Abstract

A product recall can be viewed as a firm’s worst nightmare. Although the long-term damage to brand equity and company reputation may be difficult, if not impossible, to quantify, the short-term impact on shareholders’ wealth is readily estimable. While many studies have examined this issue in the Western context, little is known about the financial impact of a product recall announcement in China. To advance the knowledge about the financial impact of a product recall announcement, we explore this issue using event study methodology. In general, our findings are congruent with previous research that product recalls result in negative abnormal returns. Interestingly, however, we found that Chinese companies suffered from greater financial losses than their Western counterparts did. This study also provides evidence that the Chinese food industry experiences a more severe stock market reaction than the automobile industry and that a passive recall strategy was associated with a more negative stock market reaction than a proactive recall strategy. We conclude with several future research avenues for global research on product recalls.
Original languageEnglish
Pages (from-to)115-123
JournalInternational Journal of Production Economics
Volume142
Issue number1
DOIs
Publication statusPublished - 2013

Corresponding author email

bmliyina@scut.edu.cn

Keywords

  • CORPORATE SOCIAL-RESPONSIBILITY
  • China
  • Event study
  • HARM CRISES
  • INFORMATION
  • MANAGEMENT
  • PERCEPTIONS
  • PRICE
  • Product recall
  • QUALITY
  • SHAREHOLDER WEALTH
  • SIGNALING THEORY
  • SUPPLY CHAIN
  • Stock market reaction
  • Supply chain quality

Indexed by

  • ABDC-A*
  • SCIE
  • Scopus

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