1. RaoulV. Kübler
Ozyegin University Istanbul
The Impact of Product Recall
Message Design on
Shareholder’s Reactions
Honey, we need to talk!

2. 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
Idenficaon
(4) Return
Convenience
!RECALL!
Hence,
a
specific
Recall
Message
design
DECREASING
negave
consumer
reacons
might
simultaneously
INCREASE
negave
shareholder
reacons
Research
Ques3ons
To
reduce
negave
reacons
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
reacon
Message
content
adapted
to
recall
circumstances
Here
focus
only
on
consumers
Negave
shareholder
reacons
due
to
ancipated
costs
High
costs
to
reinstall
consumer
trust
HOWEVER:
Investors
have
different
interests
than
consumers
(Financial
Value
VS.
Consumer
Safety)
1

3. 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
company
size
Investor
type
large
small
private
professional
Regret
Reducon
Risk
Reducon
Cost
Reducon
Problem
Invesgaon
Small/Private
Large/Private
Small/Prof.
Large/Prof.
Soc.
Resp.
Transparency
Help
w.
Ident.
Conv.
o.
Return
-­‐
+
+
+
-­‐
+
-­‐
+
+
-­‐
+
-­‐
-­‐
+
-­‐
-­‐
-­‐
Conceptual
Model
Fama/French
Model
to
invesgate
Abnormal
Returns
(AR)
for
each
product
recall
Latent
Class
Regression
Model
to
explain
differences
in
AR
through
recall
specific
message
design
Regret
Reducon
Risk
Reducon
Cost
Reducon
Problem
Invesgaon
Expert
Based
Content
Analysis
of
Recall
Messages
to
measure
strength
of
each
recall
message
dimension
2

4. First to combine classic stock models with latest
content analysis
Rit
− Rft
= αij
+ βi
*(Rmt
− Rft
)+ si
* SMBt
+ hi
* HMLt
+ εit
Fama/French
(1993)
market
model*
Abnormal
Returns
Content
Analysis
of
Recall
Messages
*due
to
lack
of
data
momentum
was
excluded
from
the
equiaon
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
rang.
Rangs
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
Idenficaon,
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

5. Investors are different. Not only to consumers!
According
to
AIC
and
BIC
criteria
3-­‐class
soluon
is
opmal
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
reacons
• 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
negave
impact
• In
case
of
private
investors
return
convenience
exerts
a
posive
impact
• In
case
of
smaller
companies
Social
Responsibility
and
Help
with
Idenficaon
exert
a
posive
impact
whereas
Transparency
and
Return
Convenience
exert
a
negave
impact
4

6. 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
negave
consumer
reacons
(social
responsibility
and
help
with
idenficaon)
5