How Long Does It Take to Recover from Product Recall? A Study on Pharmaceutical Industry Recalls

Abstract

While studies showing that product recalls hurt firm performance are common, studies on how long it takes for firms to recover from the loss associated with product recall remain scant. This is unfortunate since product recall is not the end of the game, but possibly a starting point to regain competitive advantage. We fill this gap by studying the recovery time of the sales to pre-recall period following a firm’s product recalls. We use signaling theory to investigate how firms’ recall strategies (proactive and passive strategies) handle recall crises and how different levels of recall severity affect the recovery time following recalls. We also examine how firm reputation moderates the aforementioned relationships. We test our hypotheses by employing event history analysis of drug recalls during the 10-year period from 2004 to 2013.