Does corporate social performance influence a firm’s choice of product recall strategy?

Abstract

This study examines whether firms’ choice of both the timing of a consumer product recall and the type of remedy offered are influenced by their Corporate Social Performance (CSP). Using twelve years (2008 – 2019) of manufacturer product recalls issued by the U.S. Consumer Product Safety Commission, the agency responsible forensuring the safety of domestically produced and imported consumer products, and CSP data from KLD, we provide evidence of an inverse relationship between CSP strength and proactive recalls suggesting that companies with stronger CSP delay recall announcements, mitigating the financial impact on shareholders. We find no significant relationship between firms with CSP concerns and proactive recall strategies. We also find that once a recall is initiated, firms with recognized CSP strengths provide a full remedy to consumers, repairing consumer trust. These results imply that firms with strong CSP make a balanced tradeoff between the interests of consumers and shareholders. Overall, these findings imply that CSP provides firms strategic flexibility in developing their response to product harm crises. Given the interconnected global economy, these results should be of interest not only to US regulators but also to other country regulators who work to ensure the safety of consumer products.