A quantitative study on crisis communication : how product recall announcements affect firms' stock prices.
Date of Issue2012
College of Business (Nanyang Business School)
This paper investigates the impact of recall announcements on stock prices in the food industry in the U.S. Most research on crisis management and communication is qualitative, using panel discussions and event studies to determine best practices. In contrast, we adopt a quantitative approach using historical data which provides a much needed linkage between communication strategies and fluctuation of stock price. We shortlisted 33 food companies listed in the U.S. and studied the contents of food recall announcements from 2007 to 2011 using the Food and Drug Administration (FDA) archives. Using a multiple regression method, we study the correlation between timing and contents of recall announcements, and the abnormal return of the stock price over a 5-day window. The results show that recall announcements released after the closing of market on Fridays lead to a less negative abnormal return of the stock. Contents of recall announcements, on the other hand, do not have a significant impact on the abnormal return. Based on the results, companies could mitigate their stock price drop by strategically timing their announcement release. On the other hand, crafting the perfect recall announcement does not necessarily lead to less negative price changes.
Final Year Project (FYP)
Nanyang Technological University