The Research On Market Reaction Of The Product Recall Of The Listed Companies

In the day of social and economic development, the consciousness and attitudesof social public have changed positively and dramatically. The public are increasinglyaware of the the importance in bearing social responsibility and protecting consumers’rights and interests when the enterprises obtain economic benefits.The occurrence ofthe "melamine" milk powder incident,"poison capsule" event,"Lipton" excessivepesticide events, cooking oil, plasticizer event and so on in food and medicineindustry in recent years, makes the listed companies of China begin to be involved inthe product recall.Detective products cause great threat to consumers’ daily life andhealth, making an urgent request to the enterprises to fulfill the social responsibilityto recall the defective products.As one aspect of the negative social responsibilityinformation disclosure, product recall is regarded as the nightmare of the enterprise,though the huge loss of brand equity and reputation due to product recall is difficult tobe estimated directly, but the impact of product recall on shareholder wealth is easy tobe quantified. In this paper, the writer collects product recalls of food and drugindustry manually, the date that announces product recall as the event day, to analyzethe market reaction of the information disclosure of product recall, and the loss ofwealth, and propose the relevant suggestions on the results.The content frame of the paper is arranged as following: the first chapter mainlyanalyzes the research background and research significance of the informationdisclosure of product recall. The second chapter reviews and summarizes the domesticand foreign literatures about product recalls systematically. The Chapter iii analyzingthe theories which the presumption that put forward in this paper relies on. The fourthchapter puts forward the research hypothesis,descriptive statistics analysis, researchdesign and the analysis of the empirical results in this paper. Chapter v give asummarize to the full text, and proposes the relevant suggestions, at the same time,analyzes the limitation of this paper and the future research direction.This article bases to the review of the domestic and foreign literatures aboutproduct recalls, in the institutional background of China’s product recall system, toselect the42food and drug recall incidents in Chinese listed companies during2007to2012as the research samples, the industry peers as the paired samples, totallyobtaining1591samples, and use the event study method and multiple regression analysis to analyze the market reaction of the food and drug recall enterprises. Theempirical study results show that the capital market reacts significantly negative to thefood and drug recall enterprises, and the market reaction on different industries isdifferent, the shareholders of the food industry suffer greater losses in the productrecall. According to the empirical evidence and our system background, we proposesuggestions on improving recall systems and social responsibility informationdisclosure.