The Research On The Financial Impacts Of The Product Recalls Of The American Listed Companies

In recent years,defective product recall incidents have emerged one after another,which not only threatened the personal and property safety of consumers,the firm subject to recall was also punished by the stock and product markets due to the high uncertainty of recovering from this scandal with huge direct and indirect costs of the recall and the possibility of sales loss and into disrepute,resulting in adverse social impact.In this context,scholars have conducted extensive research,traditional research were mainly for the stock market reaction to the product recalls in the automotive,food and other industries when the recall announcement was disclosed,which ignored the actual changes in company's performance and risk factors after recall scandal to examine the rationality of the short-window price reaction,as well as the influencing factors of the extent of financial implications.This paper takes into account historical researches and related theories,collecting all consumer products recall information of the United States listed companies from CPSC from year 2008 to 2012;206 effective samples were finally used.We study the financial impacts of the recall in three aspects,the short-window price reaction around recall announcements,the market share changes after the recall,the credit rating changes after the recall.We find that the cumulative abnormal returns of the relevant company's stock were significantly negative in the two-days event window after recall announcement date,and the larger scale recalled and the more serious the recall,the lower the stock abnormal returns,indicating that the greater punishment of the capital market.While there was no significant relationship between the changes in market shares and whether to recall or not.When only including the recall samples to study,the changes in market share after the recall decreased significantly with the greater relative recall size.Meanwhile,when the listed companies to disclose the product recall,the company's credit rating would be lowered,the more serious the recall,the greater downward of the rating.By studying the changes in the company's performance and risk in the medium term,it can be tested to some extent if the investors were overreacted when the recall was announced.This study demonstrates the rationality of short-window price reaction,which also highlights the importance of strengthening internal controls and actively investing in social responsibility.