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Evaluating the costs of meat and poultry recalls to food firms using stock returns

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  • Pozo, Veronica F.
  • Schroeder, Ted C.

Abstract

Food recalls have been an issue of great concern in the food industry. Stakeholder responses to food safety scares can cause significant economic losses for food firms. Assessing the overall impact that may result from a food recall requires a thorough understanding of the costs incurred by firms. However, a direct measurement of a firm’s total private costs and losses of revenue associated with a food recall requires firm-level data that is not available. The method utilized in this study overcomes this limitation. Using an event study, the impact of meat and poultry recalls is quantified by analyzing price reactions in financial markets. A unique contribution of this study is evaluating whether recall and firm specific characteristics are economic drivers of the magnitude of impact of recalls on stock prices. On average, shareholders’ wealth is reduced by 1.15 percent, equivalently to $109million, within 5days after a firm is implicated in a recall involving a serious food safety hazard. However, when recalls involve less severe hazards, stock markets do not react negatively. Firm size, firm’s experience handling a recall, media information and recall size are drivers of the economic impact of meat and poultry recalls. Findings from this study provide essential information to the meat industry. In particular, understanding the likely impact of food recall events is critical for firms investing in food safety technologies and protocols.

Suggested Citation

  • Pozo, Veronica F. & Schroeder, Ted C., 2016. "Evaluating the costs of meat and poultry recalls to food firms using stock returns," Food Policy, Elsevier, vol. 59(C), pages 66-77.
  • Handle: RePEc:eee:jfpoli:v:59:y:2016:i:c:p:66-77
    DOI: 10.1016/j.foodpol.2015.12.007
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    2. Chuanhui Liao & Huang Yu & Weiwei Zhu, 2020. "Perceived Knowledge, Coping Efficacy and Consumer Consumption Changes in Response to Food Recall," Sustainability, MDPI, Open Access Journal, vol. 12(7), pages 1-19, March.
    3. Page, Elina Tselepidakis, 2018. "Trends in Food Recalls: 2004-13," Economic Information Bulletin 276244, United States Department of Agriculture, Economic Research Service.
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    6. Matthew Houser & Berna Karali, 2020. "How Scary Are Food Scares? Evidence from Animal Disease Outbreaks," Applied Economic Perspectives and Policy, John Wiley & Sons, vol. 42(2), pages 283-306, June.
    7. Law, Cherry & Cornelsen, Laura & Adams, Jean & Penney, Tarra & Rutter, Harry & White, Martin & Smith, Richard, 2020. "An analysis of the stock market reaction to the announcements of the UK Soft Drinks Industry Levy," Economics & Human Biology, Elsevier, vol. 38(C).
    8. Lee, Daemyung & Boys, Kathryn A., 2018. "Market Incentives for Safe Foods: An Examination of The Effect of Food Recalls on Firms' Stock Prices," 2018 Annual Meeting, August 5-7, Washington, D.C. 273894, Agricultural and Applied Economics Association.
    9. Kong, Dongmin & Shi, Lu & Yang, Zhiqing, 2019. "Product recalls, corporate social responsibility, and firm value: Evidence from the Chinese food industry," Food Policy, Elsevier, vol. 83(C), pages 60-69.
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