The Impact of Product Recalls on Future Product Reliability and Future Accidents: Evidence from the Automobile Industry

Journal of Marketing, 2013 Forthcoming

UNC Kenan-Flagler Research Paper No. 2013-23

50 Pages Posted: 25 Oct 2012 Last revised: 11 Sep 2013

See all articles by Kartik Kalaignanam

Kartik Kalaignanam

Moore School of Business (University of South Carolina)

Tarun Kushwaha

University of North Carolina Kenan-Flagler Business School

Anne Eilert

University of South Carolina - Department of Marketing

Date Written: December 12, 2012

Abstract

Although the goal of a product recall program is to enhance safety, there is little known about whether firms learn from product recalls. This study tests the direct effect of product recalls on future accidents and future recall frequency and indirect effect through future product reliability in the automobile industry. The hypotheses are tested on 459 make-year observations involving 27 automobile makers between the period 1995 and 2011. The findings suggest that increases in recall magnitude lead to decreases in future number of injuries and recalls. This effect, in turn, is partially mediated by future changes in product reliability. The results also suggest that the positive relationship between changes in recall magnitude and changes in future product reliability is 1) stronger for firms with higher shared product assets and 2) weaker for brands of higher prior quality. The findings are robust across alternate measures and alternate model specifications and offer valuable insights for managerial practice and public policy.

Keywords: product recalls, product reliability, accidents, shared product assets, prior brand quality

Suggested Citation

Kalaignanam, Kartik and Kushwaha, Tarun and Eilert, Anne, The Impact of Product Recalls on Future Product Reliability and Future Accidents: Evidence from the Automobile Industry (December 12, 2012). Journal of Marketing, 2013 Forthcoming ; UNC Kenan-Flagler Research Paper No. 2013-23. Available at SSRN: https://ssrn.com/abstract=2166351

Kartik Kalaignanam

Moore School of Business (University of South Carolina) ( email )

1014 Greene Street
Columbia, SC 29208
United States

Tarun Kushwaha (Contact Author)

University of North Carolina Kenan-Flagler Business School ( email )

Chapel Hill, NC 27599
United States

Anne Eilert

University of South Carolina - Department of Marketing ( email )

United States

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