FROM PRODUCT RECALLS TO RECOVERY: AN ANALYSIS OF CRISIS MANAGEMENT STRATEGIES AND THEIR IMPLICATIONS FOR CORPORATE PERFORMANCE

Mohammad S K Shazzad Hossain Sikdar

doi:10.7273/000007051

This three-essay dissertation explores how firms’ crisis management strategies in response to product recalls influence their subsequent strategic actions and stock market performance. The first essay examines how the use of apology might impact firms’ stock market performance following product recalls. Results from a cross-country study of 120 product recall events involving firms across 8 countries offer insights into how national culture influences the effectiveness of corporate apologies in mitigating negative stock market performance after a product recall. Drawing on expectancy violation theory and organizational trust repair literature, I find that apologizing for product recalls generally mitigates negative share price response; however, apology is particularly effective in mitigating downturn in stock prices when the recall is more severe, and apology is offered in countries with high uncertainty avoidance and high rule of law. The second essay builds on the first one and investigates how the characteristics of upper echelons influence firm’s legitimacy regaining actions (LRA) after product recalls. Drawing on expectancy violation theory and upper echelons theory and using a sample of 708 drug recall events and 8496 firm-year observations from 2002–2016, I find that severity of product recall is positively associated with LRA, and that board independence and board national diversity positively moderate this relationship, while board size does just the opposite. The study presents a nuanced view of how the interplay between board characteristics and product recall severity may influence firm's legitimacy regaining actions after product recalls. The third essay is a meta-analysis that investigates one of the most critical questions in product recall literature: whether a firm should recall products voluntarily and in what context. By integrating signaling theory and expectancy violation theory, the study investigates the relationship between voluntary product recalls and stock market performance and how national cultural dimensions influence this relationship. Through a meta-analytic approach, I find that while voluntary recalls typically result in negative stock market reactions, the extent of these reactions is moderated by cultural dimensions like uncertainty avoidance, power distance, and long-term orientation. Specifically, in countries with higher uncertainty avoidance, the adverse impact of voluntary product recalls on stock market performance is mitigated. Conversely, in countries with higher power distance and long-term orientation, the negative impacts are more pronounced. This study advances the literature by incorporating cultural dimensions into the examination of voluntary product recalls and stock market performance, offering a more detailed understanding of investor reactions to such events across different cultures.

FROM PRODUCT RECALLS TO RECOVERY: AN ANALYSIS OF CRISIS MANAGEMENT STRATEGIES AND THEIR IMPLICATIONS FOR CORPORATE PERFORMANCE

Files and links (1)

Abstract

Metrics

Details