Document Type
Article
Journal/Book Title
International Journal of Operations and Production Management
Volume
44
Issue
7
Publisher
Emerald Publishing Limited
First Page
1
Journal Article Version
Accepted Manuscript
Last Page
29
Publication Date
6-10-2024
Creative Commons License
This work is licensed under a Creative Commons Attribution-Noncommercial 4.0 License
Abstract
Purpose:
This study investigates whether a firm that has experienced an environmental accident (EA) is less likely to conduct a product recall. If true, it would indicate that EAs tempt firms to hide operational problems that need to be revealed. The logic is that both events are operational failures that damage a firm’s reputation and share price. Following an EA, a firm may avoid a product recall to avoid providing additional evidence of operational incapability and social irresponsibility and thereby triggering amplified reputational and market penalties.
Research design/methodology/approach:
The dataset is compiled from several public and private sources and includes 4355 product recalls, 153 EAs, and 120 firms from the industries that often recall products, including automotive, pharma, medical device, food, and consumer products. The study timeframe is 2002-2013. Empirical models are evaluated using hazard modeling.
Findings:
Results show that EAs reduce the probability of a product recall by 32%, on average. Effect sizes are larger when accidents are more frequent or more severe and when recalls are less severe. Through post hoc analyses, we find support for the proposed mechanism that firms avoid recalls due to reputational concerns, that EAs can impact recall behavior for several years if a firm has experienced multiple EAs, and that firms are more likely to avoid recalls managed by the CPSC and NHTSA than recalls managed by the FDA.
Originality/value:
Prior studies in operations management (OM) have not examined the impact of one negative event on another. We find that EAs tempt firms to hide operational problems that need to be revealed. While recalling fewer defective products is of concern to consumers and regulators, should EAs influence a broader set of discretionary operational decisions, such as closing/relocating a production facility, outsourcing production, or conducting a layoff, study implications increase significantly.
Recommended Citation
Hardcopf, R. and Shah, R. (2024), "Hiding operational problems that need to be revealed – a study linking environmental accidents and product recalls", International Journal of Operations & Production Management, Vol. 44 No. 7, pp. 1390-1412. https://doi.org/10.1108/IJOPM-01-2023-0033
Comments
This is an accepted manuscript and has a different name from the final product. See DOI for full final version.