Toward Faster Recalls of Dangerous Medical Devices: Does Ownership by Large Institutional Investors Matter?

ABSTRACT Recall delays expose consumers to prolonged risk and undermine a firm's long‐term performance and reputation. Building on agency theory's conceptualization of principal‐agent relationships, we theorize that large institutional investors play an important monitoring role wherein their ownership encourages faster recalls. We then build on agency theory's core dimension of information asymmetry to examine whether R&D intensity and device class moderate this influence. Using a matched sample of 2932 medical device recalls involving severe defects across 69 firms from 2002 to 2020, we find that greater ownership by large institutional investors is associated with faster recalls such that a 1% increase in ownership yields a 24‐day reduction in time‐to‐recall. This relationship is weakened by increases in R&D intensity and for high‐risk devices. Our study highlights the importance of considering how operations management phenomena are influenced by large institutional investors, and we identify both firm‐ and device‐level pathways that moderate this influence. While managers, policymakers, and regulators may be wary of the influence that large institutional investors have, our findings offer a previously unidentified benefit: faster recalls.