My team and I have just had our research accepted into the International Journal of Production Economics after several rigorous reviews and revisions – published as Wood, Wang, Olesen, and Reiners (2017). The article is titled: The effect of slack, diversification, and time to recall on stock market reaction to toy recalls
In this work, we used event study methodology, which has been used in the Operations Management literature to study demand-supply mismatches (Hendricks & Singhal, 2009), medical device recalls (Thirumalai & Sinha, 2011), product introduction delays (Hendricks & Singhal, 2008), and food recalls (Salin & Hooker, 2001) among other topics. The calculations gave us an abnormal return value for each event that we then used in a cross-sectional regression to test a series of hypotheses that relate to the operational decisions that managers can make. Specifically, we were looking at geographic and business diversification; financial, inventory, and capacity slack; how long a product is on the market for before it is recalled; and whether reactions to the recalls change appreciably over time.
Past toy recalls have led to an increase in consumer concerns while toy manufacturers and retailers increasingly outsource and create longer supply chains, making it more challenging for them to ensure toy safety. This article examines firms making toy recall announcements to assess the impact operational characteristics have on the negative stock market reaction to the announcement. 135 toy recall announcements in the U.S. from 1979 to 2016 were analyzed using event study and cross-sectional regression. While a toy recall announcement results in a negative stock market reaction, our results show that greater levels of business diversification, inventory slack, and a longer time to recall are all associated with a less negative stock market reaction. In contrast, greater capacity slack is associated with a more negative stock market reaction. We find no evidence that geographic diversification or financial slack influences the stock market reaction, nor have reactions changed appreciably over time. This article contributes to the product harm and product recall literature by focusing on these operational elements. Managers should be aware of the benefits of greater slack and business diversification while planning their business, and the impact of a longer time to recall.
Hendricks, K. B., & Singhal, V. R. (2009). Demand-supply mismatches and stock market reaction: Evidence from excess inventory announcements. Manufacturing & Service Operations Management, 11(3), 509–524. https://doi.org/10.1287/msom.1080.0237
Thirumalai, S., & Sinha, K. K. (2011). Product recalls in the medical device industry: An empirical exploration of the sources and financial consequences. Management Science, 57(2), 376–392. https://doi.org/10.1287/mnsc.1100.1267
Big congratulations to the University of Auckland Business School students who have completed their work for the Summer Scholarships (giving them the chance to work with faculty members over the summer on some research projects). I was fortunate enough to supervise a project with Rikki Smith, who did an outstanding job on the project and displayed a high level of initiative and aptitude in her research work.
Does the research plan ever survive contact with data or actual use? Sometimes seems that it does not. Even plans which seemed a good idea at the time you may find ‘not quite working’ when you actually go to analyse your data. Spent a few hours lately trying to work out the best way to analyse data. What I *thought* I would do simply wasn’t working out. Effective and careful planning helps resolve many of the problems with our research. More time taken in the planning, particularly focusing on how the data will be analysed, and the biases or limitations, will pay dividends later in the research project. Then – always check the assumptions of the statistical tests and make sure you haven’t violated any of the crucial assumptions. It’s alawys fun. Working hard at the start of the project does relieve plenty of pressure near the end of the project. A little time invested at the start, with a little support, makes everything much easier later on and also ensures that you have considered OTHER factors which may still become important, if the research plan changes a little. So – plan carefully, design your research method carefully, and ensure that you understand the assumptions of any tests you will use and why you will use these tests.