Product Recalls, Past Innovations, & R&D Intensity: An Empirical Examination of Interrelationships

Abstract

Past research has supported the idea of increases in research and development (R&D) efforts in the face of failures (Eggers and Kaul 2018, Greve 2003). We follow this research and propose that firms’ past experiences with recalls intensify subsequent R&D efforts. Further, we propose that firms’ past R&D efforts and stocks of innovation outcomes accentuate intensification of subsequent innovation efforts attributed to firm recall experience. This is based mainly on the idea that prior innovation knowledge provides a better understanding of emerging conditions leading to more proactive R&D efforts (Tsai 2001). Our research questions are: (1) do firms’ recalls intensify subsequent R&D efforts, and (2) do firms’ past innovation efforts and stocks of innovation outcomes accentuate the intensification of subsequent R&D efforts associated with recalls? Based on analysis of longitudinal data on product recalls in medical device and pharmaceutical industries supplemented by data from the United States Patent and Trademark Office (USPTO) and Wharton Research Data Services (WRDS), we find empirical evidence for R&D efforts attributed to past product recalls. We also find that past innovation efforts and stocks of innovations support subsequent R&D efforts attributed to past product recalls.