The Effect of Food Recalls on Stock Price : An Event Study on the American Meat and Poultry Sector

Abstract: While food recalls are receiving growing attention amongst consumers, they are also of great importance from a company perspective. By applying an event study method, we examine the impact of recalls on the stock price of affected companies. Our paper contributes to the existing literature in three ways. First, our study shows that the average reduction in firm value after twenty days is approximately $304 million. Second, we identify two explanatory variables not identified by previous literature. These variables assist in explaining the stock price fluctuations related to recalls. Third, we present a comprehensive model of all the explanatory variables, consisting of our findings compiled with explanatory variables identified by previous literature. Our findings extend to the general body of knowledge on food recalls‘ impact on stock price by identifying two explanatory variables. Additionally, we provide three practical recommendations that are beneficial when developing and evaluating risk-management strategies.