Recall Campaign Timing: The Impact on Sales and Stock Market Performance

ABSTRACT The purpose of this study is to build and test theory regarding the effects of product recall timing on a firm's stock performance and sales. The impact on firm performance is assessed from moving first with a recall campaign in an industry sector, the time relative to a competitor's recall campaign of substitutable products, and the time between the day the defect notification was submitted to a federal agency by the manufacturer and the day when owners are notified that a solution is in place. Using National Highway Traffic Safety Administration (NHTSA) data for the period of 2010–2015, the study employs an event study methodology, which involves examining the changes in specific variables of interest around the time of an event. We find that delaying recall campaigns vis‐à‐vis your competitors, though advantageous, has a diminishing returns to impact on firm performance. In addition, we identify advantages of initiating the recall campaign first from a sales perspective. Finally, we also find a negative impact from delayed resolution to recalls.