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Stock market reaction to food recalls: a GARCH application

Author

Listed:
  • Zijun Wang
  • Victoria Salin
  • Neal Hooker
  • David Leatham

Abstract

How food recalls due to bacterial contamination affect the stock prices of two companies are examined using a version of the financial market model that accounts for Generalized Autoregressive Conditional Heteroscedasticity (GARCH) effects. GARCH methodology was necessary to uncover the time-varying volatility in the series and it contributed to more efficient econometric results. The initial food recall undertaken by the company is associated with reduced mean returns and higher volatility of the companies studied. Repeated recalls by the same company are not associated with strong reactions. Volatility spillovers across firms suggest potential industry-wide repercussions from bacterial contamination incidents.

Suggested Citation

  • Zijun Wang & Victoria Salin & Neal Hooker & David Leatham, 2002. "Stock market reaction to food recalls: a GARCH application," Applied Economics Letters, Taylor & Francis Journals, vol. 9(15), pages 979-987.
  • Handle: RePEc:taf:apeclt:v:9:y:2002:i:15:p:979-987
    DOI: 10.1080/13504850210148125
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    References listed on IDEAS

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    1. Frenzen, Paul D. & Buzby, Jean C. & Rasco, Barbara, 2001. "Product Liability And Microbial Foodborne Illness," Agricultural Economics Reports 34059, United States Department of Agriculture, Economic Research Service.
    2. Davidson, Russell & MacKinnon, James G., 1993. "Estimation and Inference in Econometrics," OUP Catalogue, Oxford University Press, number 9780195060119.
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    Cited by:

    1. Resende-Filho, Moises & Buhr, Brian, 2007. "Economics of traceability for mitigation of food recall costs," MPRA Paper 3650, University Library of Munich, Germany.
    2. Yamaguchi, Keiko, 2008. "Reexamination of stock price reaction to environmental performance: A GARCH application," Ecological Economics, Elsevier, vol. 68(1-2), pages 345-352, December.
    3. Hooker, Neal H. & Teratanavat, Ratapol P. & Salin, Victoria, 2005. "Crisis management effectiveness indicators for US meat and poultry recalls," Food Policy, Elsevier, vol. 30(1), pages 63-80, February.
    4. Mojduszka, Eliza M., 2004. "Private And Public Food Safety Control Mechanisms: Interdependence And Effectiveness," 2004 Annual meeting, August 1-4, Denver, CO 19987, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    5. Brandon Schaufele & David Sparling, 2011. "Regulation and the financial performance of Canadian agribusinesses," Agricultural Finance Review, Emerald Group Publishing, vol. 71(2), pages 201-217, August.
    6. Moonsoo Park & Yanhong H. Jin & David A. Bessler, 2008. "The impacts of animal disease crises on the Korean meat market," Agricultural Economics, International Association of Agricultural Economists, vol. 39(2), pages 183-195, September.
    7. Eng Cheah & Wen Chan & Corinne Chieng, 2007. "The Corporate Social Responsibility of Pharmaceutical Product Recalls: An Empirical Examination of U.S. and U.K. Markets," Journal of Business Ethics, Springer, vol. 76(4), pages 427-449, December.
    8. Just, David R. & Wansink, Brian & Turvey, Calum G., 2009. "Biosecurity, Terrorism, and Food Consumption Behavior: Using Experimental Psychology to Analyze Choices Involving Fear," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 34(1), April.
    9. Sengupta, Sanchita, 2010. "Three Essays in Environmental and Agricultural Issues," ISU General Staff Papers 201001010800002848, Iowa State University, Department of Economics.
    10. Michael Murg & Matthias Pachler & Alexander C. M. Zeitlberger, 2016. "The impact of analyst recommendations on stock prices in Austria (2000–2014): evidence from a small and thinly traded market," Central European Journal of Operations Research, Springer;Slovak Society for Operations Research;Hungarian Operational Research Society;Czech Society for Operations Research;Österr. Gesellschaft für Operations Research (ÖGOR);Slovenian Society Informatika - Section for Operational Research;Croatian Operational Research Society, vol. 24(3), pages 595-616, September.
    11. Pozo, Veronica F. & Schroeder, Ted C., 2013. "Effects of Meat Recalls on Firms' Stock Prices," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. 151287, Agricultural and Applied Economics Association.
    12. Eric Giraud-Héraud & Hakim Hammoudi & Louis-Georges Soler, 2006. "Food Safety, Liability and Collective Norms," Working Papers hal-00243034, HAL.
    13. Declerck, Francis, 2014. "Do Agricultural Commodity Firm Stock Price and Agricultural Commodity Price Move Together?," 2014 International European Forum, February 17-21, 2014, Innsbruck-Igls, Austria 199388, International European Forum on Innovation and System Dynamics in Food Networks.
    14. Zhou, Li & Turvey, Calum & Hu, Wuyang & Ying, Ruiyao, 2015. "Fear and Trust: How Risk Perceptions of Avian Influenza Affect the Demand for Chicken," 2015 AAEA & WAEA Joint Annual Meeting, July 26-28, San Francisco, California 202077, Agricultural and Applied Economics Association;Western Agricultural Economics Association.
    15. Declerck, Francis, 2014. "Do Agricultural Commodity Firm Stock Price and Agricultural Commodity Price Move Together?," International Journal on Food System Dynamics, International Center for Management, Communication, and Research, vol. 5(3).
    16. Teratanavat, Ratapol P. & Hooker, Neal H. & Salin, Victoria, 2003. "Exploring Meat And Poultry Recall Data For Policy Lessons," 2003 Annual meeting, July 27-30, Montreal, Canada 22142, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    17. 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.
    18. Garcia-Fuentes, Pablo & Ferreira, Gustavo & Harrison, R. Wes & Kinsey, Jean D. & Degeneffe, Dennis, 2014. "Consumer Confidence in the Food System, Media Coverage and Stock Prices for the Food Industry," Journal of Food Distribution Research, Food Distribution Research Society, vol. 45(2), July.
    19. Garcia Martinez, Marian & Fearne, Andrew & Caswell, Julie A. & Henson, Spencer, 2007. "Co-regulation as a possible model for food safety governance: Opportunities for public-private partnerships," Food Policy, Elsevier, vol. 32(3), pages 299-314, June.
    20. Yoo, Kyungjin & Lee, Youah & Heo, Eunnyeong, 2013. "Economic effects by merger and acquisition types in the renewable energy sector: An event study approach," Renewable and Sustainable Energy Reviews, Elsevier, vol. 26(C), pages 694-701.

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