TY - JOUR
T1 - Hiding operational problems that need to be revealed – a study linking environmental accidents and product recalls
AU - Hardcopf, Rick
AU - Shah, Rachna
N1 - Publisher Copyright:
© 2023, Emerald Publishing Limited.
PY - 2023
Y1 - 2023
N2 - 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 discretionary product recall to avoid providing additional evidence of operational incapability and social irresponsibility and thereby triggering amplified reputational and market penalties. Design/methodology/approach: The dataset is compiled from several public and private sources and includes 4,355 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, the study finds support for the proposed mechanism that firms avoid recalls due to reputational concerns, provides evidence that EAs can have a lengthy impact on recall behavior, and shows 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. This study finds 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.
AB - 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 discretionary product recall to avoid providing additional evidence of operational incapability and social irresponsibility and thereby triggering amplified reputational and market penalties. Design/methodology/approach: The dataset is compiled from several public and private sources and includes 4,355 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, the study finds support for the proposed mechanism that firms avoid recalls due to reputational concerns, provides evidence that EAs can have a lengthy impact on recall behavior, and shows 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. This study finds 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.
KW - Behavioral operations
KW - Environmental accident
KW - Environmental management
KW - Product recall
KW - Sustainability
UR - http://www.scopus.com/inward/record.url?scp=85180172977&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=85180172977&partnerID=8YFLogxK
U2 - 10.1108/IJOPM-01-2023-0033
DO - 10.1108/IJOPM-01-2023-0033
M3 - Article
AN - SCOPUS:85180172977
SN - 0144-3577
JO - International Journal of Operations and Production Management
JF - International Journal of Operations and Production Management
ER -