When the Music Stops: Examining the Timing of Firm Response Following Awareness of Product Defects

Abstract

Considering the hazard posed by defective products, we know relatively little about how firms determine when to recall products once they are known to have defects. Yet, theoretically, examining this issue opens opportunities to examine strategic aspects of signaling dynamics pertaining to when such negative signals are released to the public. Drawing on two competing perspectives: threat rigidity and stealing the thunder, this study examines the contingencies that determine when firms choose to recall a product following their awareness of a defect. We find that firms are more likely to recall product earlier when the defect is more severe. Moreover, this relationship is moderated by firm age and firm size, showing that older and larger firms tend to announce product recall earlier. Our study demonstrates that stealing the thunder i.e., pre-empting bad news by announcing it quickly, dominates firms’ behaviors in the circumstances of product recall, over alternative theoretical perspectives such as threat rigidity.