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Market Incentives for Safe Foods: An Examination of Shareholder Losses from Meat and Poultry Recalls
Author(s) -
Thomsen Michael R.,
McKenzie Andrew M.
Publication year - 2001
Publication title -
american journal of agricultural economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.949
H-Index - 111
eISSN - 1467-8276
pISSN - 0002-9092
DOI - 10.1111/0002-9092.00175
Subject(s) - incentive , business , shareholder , food safety , stock (firearms) , event study , finance , corporate governance , marketing , economics , food science , microeconomics , mechanical engineering , paleontology , context (archaeology) , engineering , chemistry , biology
Meat and poultry recalls, while voluntary, are carried out under governmental oversight. If firms have financial incentives to avoid being implicated in a recall situation, governmental involvement in recalls may cause firms to internalize social costs when making investment decisions concerning food safety controls. To examine these incentives, we analyze federally supervised meat and poultry recalls from 1982 to 1998 within an event study. Results show significant shareholder losses when publicly traded food companies are implicated in a recall involving serious food safety hazards. We find no evidence that the stock market reacts negatively when recalls involve less severe hazards.