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Raoul V. Kübler Ozyegin University Istanbul
The Impact of Product Recall Message Design on
Shareholder’s Reactions
Honey, we need to talk!���
How do investors react to consumer specific recall communication?
Recalls unse*le consumers and lead to loss in sales
Recall Message primary tool to calm down consumers and reinstall trust
(1) Stated Social Responsibility
(2) Transparency (3) Help with
Iden<fica<on (4) Return
Convenience
!RECALL!
Hence, a specific Recall Message design DECREASING nega<ve consumer reac<ons might simultaneously INCREASE nega<ve shareholder reac<ons
Research Ques3ons To reduce nega<ve reac<ons from consumers AND
investors managers need to know
1. How investors react to the design of the recall message
2. How investor and company specific factors moderate the reac>on
Message content adapted to recall circumstances
Here focus only on consumers
Nega>ve shareholder reac>ons due to an>cipated costs
High costs to reinstall consumer trust
HOWEVER: Investors have different interests than consumers (Financial Value VS. Consumer Safety)
1
Investigating the investor focus
Stage 1 Abnormal
Returns (AR)
Stage 2 Explain AR
with recall message design
Focus/ReacCon depends on size of company and investor type
compa
ny size
Investor type large
small
private professional
Regret Reduc>on
Risk Reduc>on
Cost Reduc>on
Problem Inves>ga>on
Small/Private
Large/Private
Small/Prof.
Large/Prof.
Soc. Resp.
Transparency
Help w. Ident.
Conv. o. Return -‐
++
+-‐
+-‐
++
-‐ +-‐ -‐
+-‐ -‐ -‐
Conceptual Model
Fama/French Model to inves<gate Abnormal Returns (AR) for each product recall
Latent Class Regression Model to explain differences in AR through recall specific message design
Regret Reduc>on
Risk Reduc>on
Cost Reduc>on
Problem Inves>ga>on
Expert Based Content Analysis of Recall Messages to measure strength of each recall message dimension
2
First to combine classic stock models with latest content analysis
R
it− R
ft= α
ij+ β
i* (R
mt− R
ft)+ s
i* SMB
t+ h
i* HML
t+ ε
it
Fama/French (1993) market model* Abnormal Returns Content Analysis of Recall Messages
*due to lack of data momentum was excluded from the equia>on
with t = <me index; i = recall index Rit = return of i in t; Rmt= average market return in t SMB = weighted porTolio of small minus big stocks HML = weighted porTolio of high book to market minus low book to market stocks
Latent Class Regression Model (esCmated with Latent Gold 4.0)
6 experts content analyzed with the help of the dimensional scale based approach presented in Kübler and Albers (2010) all 60 recall messages. Experts stated confidence in own ra>ng. Ra>ngs got dimension wise aggregated by weighted confidence score (vanBruggen et al. (2002).
• Dependent variable: abnormal returns (event day) • Independent variables: Social Responsibility, Transparency, Help with Iden<fica<on,
Return Convenience • Co-‐Variates: company size (number of employees) and investor porTolio (share of
private investors)
Latent Class Analysis to account for heterogeneity with in conceptual model (different focus points due to type of investor and company size) and data (different industries
3
Investors are different. Not only to consumers!
According to AIC and BIC criteria 3-‐class solu<on is op<mal
Large Professional Large Private Small
Overall R2= .971
Class-‐R2 = .594 Class Size = 48.4%
Class-‐R2 = .920 Class Size = 26.9%
Class-‐R2 = .955 Class Size = 24.7%
beta z-‐value Intercept -‐.030 . -‐.705 SocR -‐.050** -‐7.619 Trans .012 . 1.502 ConRet .045** 6.825 HwI .001 . .003
Size .001** 2.232 Investor .024* . 1.757
beta z-‐value Intercept .196** 6.761 SocR 0.42** 9.258 Trans -‐.021** -‐3.773 ConRet -‐.010** -‐2.101 HwI .025** 5.006
Size -‐.001** -‐2.160 Investor .008 . 0.45
beta z-‐value Intercept .150** 5.370 SocR -‐.028** -‐2.686 Trans -‐.008 . -‐1.573 ConRet .004 . .121 HwI -‐.014** -‐2.865
Size .001* 1.884 Investor -‐.031** -‐2.312
• Recall Message content explains most of variance in shareholder reac>ons • Solid results for professional and private investors of larger companies; in case of
smaller companies no investor specific differences • In case of larger companies with professional investors stronger Social Responsibility
statements and higher degrees of Transparency exert a nega>ve impact • In case of private investors return convenience exerts a posi>ve impact • In case of smaller companies Social Responsibility and Help with Iden>fica>on exert a
posi>ve impact whereas Transparency and Return Convenience exert a nega>ve impact 4
Communication adaption is key!
Investors react differently than consumers Design investor specific recall communication Company size and investor focus important!
• In case of larger companies reduce doubt within investors by emphasizing what you do NOW to please customers (convenience of return) instead of talking about what you did previously but failed with (social responsibility statements).
• In case of smaller companies reduce regret and risk percep3on by not speaking about costs (convenience of return) but what you do to avoid nega>ve consumer reac>ons (social responsibility and help with iden>fica>on)
5
