Inconsistent Search Results
Users may experience issues with the search function. We encourage you to browse our pages manually through the navigation until this is resolved. Thank you for your patience.

Recall and Response: Relationship Adjustments to Adverse Information Shocks

Written by:
Working Paper Number: CES-20-13

Abstract

How resilient are U.S. buyer-foreign supplier relationships to new information about product defects? We construct a novel dataset of U.S. consumer-product recalls sourced from foreign suppliers between 1995 and 2013. Using an event-study approach, we find that compared to control relationships, buyers that experience recalls temporarily reduce their probability of trading with the suppliers of the recalled products by 17%. The reduction is much larger for new than established buyer–supplier relationships. Buyers that experience a recall are more likely to add other suppliers to their portfolios, diversifying supplier-specific risk in the aftermath of a recall; this effect, too, is larger for buyers impacted by recalls in new relationships. There is a long lag – up to two years – before diversification, consistent with a high cost of establishing new relationships.

Page Last Revised - October 8, 2021