The Impact of Product Recalls on Future Product Reliability and Future Accidents: Evidence from the Automobile Industry

Abstract

Although the goal of a product recall program is to enhance safety, little is known about whether firms learn from product recalls. This study tests the direct effect of product recalls on future accidents and future recall frequency and their indirect effect through future product reliability in the automobile industry. The authors test the hypotheses on 459 make/year observations involving 27 automobile makers between 1995 and 2011. The findings suggest that increases in recall magnitude lead to decreases in future number of injuries and recalls. This effect, in turn, is partially mediated by future changes in product reliability. The results also suggest that the positive relationship between recall magnitude and future product reliability is (1) stronger for firms with higher shared product assets and (2) weaker for brands of higher prior quality. The findings are robust across alternate measures and alternate model specifications and offer valuable insights for managerial practice and public policy.

Gestão de crise e seu impacto na imagem de marca

“…This call could also be spontaneously made by the company as soon as it detects the defect or problem with any product (Matos & Veiga, 2003). Although the recall campaign object is to solve a potential p roblem, it could also show to society a control process failure (Kalaignanam et al, 2013).…”

“…A well-managed crisis could improve the corporate image, assigning the image of a socially responsible company. A good management during the crisis could also reduce recovery times and make the corporation stronger after the extreme experience (Kalaignanam et al, 2013;Tsang, 2000). Still, a brand that has already been through a recall would be more sensitive to future crises, and the negative effects may be increased by the recurrence (Siomkos & Kurzbard, 1994;Siomkos et al, 2010).…”

“…The experience of the crisis apparently brought the corporation closer, reinforcing the team spirit and the connection with the market (consumers and clients). This strengthening of the corporation after the crisis (Kalaignanam et al, 2013;Tsang, 2000) is a topic little explored in Brazil by scientific research in general management and human resources.…”

“…Is there an upward trend in cases of recall given the increasing complexity of products, the growing concern of producers with their brands, increasing regulatory requirements and consumer protection policies (Dawar & Pillutla, 2000;Donnelly et al, 2012;Kalaignanam et al, 2013). The interest of media coverage enhances the visibility of cases of recall and their impact on brands and businesses (Cleeren et al, 2013;Van Heerde et al, 2007;Tsang, 2000), and digital media reinforce further this effect of "viralization" messages by mouth communication negative mouth (Coombs, 2007b;Crescitelli & Shimp, 2012).…”

Consumer, Investor, and Combined Reactions Following Product-Harm Crises

“…Product-harm crises, which include product recalls, have greatly increased in the past few decades according to the Consumer Product Safety Commission (Kalaignanam Kushwaha, & Eilert, 2013). For example, in 2000, over 175 deaths and 700 serious injuries were attributed to a series of defective tires produced by Firestone (Total Recall, 2006).…”