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SECURITY PRICE REACTIONS AROUND PRODUCT RECALL ANNOUNCEMENTS
Author(s) -
Pruitt Stephen W.,
Peterson David R.
Publication year - 1986
Publication title -
journal of financial research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.319
H-Index - 49
eISSN - 1475-6803
pISSN - 0270-2592
DOI - 10.1111/j.1475-6803.1986.tb00441.x
Subject(s) - reputation , equity (law) , event study , recall , product (mathematics) , business , monetary economics , advertising , economics , psychology , law , political science , paleontology , context (archaeology) , geometry , mathematics , cognitive psychology , biology
Abstract This study presents an empirical, event‐time analysis of the financial impact of product recall announcements on the equity holders of affected firms. Product recalls convey relevant information to the market at the time the announcement is reported in The Wall Street Journal. Further, security prices continue to react significantly to product recall announcements for approximately two months following the initial news release. No relation between the firm's equity decline and the direct costs of the recall is found, indicating the importance of indirect costs such as litigation or a reduction in future corporate sales due to reputation damage.