Product recall in the automobile industry: The impact of performance feedback on the decision of crisis management

In high-stakes industries where product failures can trigger public scrutiny and financial loss, understanding how firms manage product risk is necessary. This research extends performance feedback theory (PFT) into crisis management, examining the impact of sales performance feedback on firms’ recall decisions. Using data tracking recurring product recalls since the inception of automotive sales from the National Highway Traffic Safety Administration, we test how deviations from performance aspirations shape risk-related decisions. Consistent with the central tenet of PFT–performance compared to historical and social aspirations–we demonstrate a U-shaped relationship between sales performance and recall likelihood when performance falls below historical aspirations. Conversely, when performance exceeds historical aspiration, we observe the left-hand side of an inverted U-shaped relationship, deviating from patterns typically associated with gain-pursuit behavior. Moreover, we identify a flat U-shaped relationship when performance is below social aspirations, suggesting that firms prioritize historical over social aspirations in managing product risk.