Consumer, Investor, and Combined Reactions Following Product-Harm Crises

Abstract

Using a series of Toyota automotive recalls as the context, this study examines reactions by consumers, investors, and reports on a combined measure to capture the overall effect of the recalls on the firm. Following the recalls, consumer sales returned to pre-recall levels quickly, however, investors immediately punished the firm with negative abnormal returns of between -14.16 and -16.04% over the longest event windows examined. A combined measure designed to capture consumer and investor reaction shows that the overall brand value of Toyota declined by 16% in the year following the announcement of the product-harm crises. Investor and consumer reaction was different following the recalls. Managerial implications are discussed.