Essays on Product Recalls, New Product Preannouncements, and Shareholder Value
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Product recalls are widely recognized as a manufacturer’s worst nightmare. They put the value generated by product innovation at risk. In my dissertation, I investigate the factors that determine the effects of product recalls on firm value and the contingent influence of product recalls on the effects of new product preannouncements on firm value. In the first essay, I examine the determinants of the short- and long-term effects of product recalls on firm value. The findings offer important insights. First, while brand advertising has a significantly negative effect on short-term abnormal returns to product recall announcement, but not in the long run, especially when the recall involves a large number of vehicles. Second, advertising is positively associated with long-term shareholder value to product recall announcements. Third, diligent response to the recall (post-recall preparation) also has a positive effect on long-term shareholder value. Finally, although the voluntary recall initiation strategy has a significantly negative effect on short-term abnormal returns to product recall announcement, it has significantly positive effect on long-term firm value. Thus, the results suggest that managers should advertise judiciously, prepare post-recall response diligently, and initiate recalls to mitigate the negative impact of the product-harm crises. In the second essay, I focus on the determinants of the effect of new product preannouncements on short-term shareholder value changes in an environment characterized by frequent product recalls. The findings indicate that product recalls reduce the significant short-term abnormal financial returns from new product preannouncements. The results show that the product recalls can dampen the effect of new product innovativeness on the short-term abnormal returns to new product preannouncements. However, advertising spending during product recalls can attenuate the negative effects of product recall volume on short-term returns to new product preannouncements. The findings offer managers clear guidelines on when to preannounce new products and on how to manage advertising amid product recalls to realize greater financial value from new product preannouncements.
Yun, Wonjoo (2014). Essays on Product Recalls, New Product Preannouncements, and Shareholder Value. Doctoral dissertation, Texas A & M University. Available electronically from