The Impact Of Product Safety On Firms' Market Value

The increase in the number of high-profile product safety incidents in recent years highlights the issue of product safety.Chinese children product safety is particularly vital.Since the particularity of consumer groups and product requirements of design and manufacturing,product safety incidents are highly likely to occur in children product industry if companies lack social responsibility.Children are special consumer groups.They are vulnerable and some harm they suffered is continuous,latent even irreversible.All the products they using will affect their health,growth and even life.Once happened,children product safety crisis also has a significant influence on enterprises even the entire industry.Rectifying the problems would require a systematic examination of the increasing children product safety issues in China.While many studies have examined this issue in the Western context and the auto industry,little is known about the financial impact of children product safety issues in China.This study assessed the market reaction to children product safety issues in China and developed a further understanding what factors influence the magnitude of stock market reaction to children product safety issues.92 children product safety events in 2007-2016 were analyzed using event study and linear regression.The study found that those product safety events had a significantly negative impact on enterprise value(-0.69%).Our findings indicate that the stock market reaction is more negative for children safety events that defective products are recalled.Besides,crisis with involved products manufactured by its own is associated with a more negative impact on the enterprise value than those by outsourcing firms.Finally,we also analyzed how the market value reacts half a year after the event break out.There is evidence of statistically significant abnormal stock price performance over half a year after the breakout of children product safety issues.And with time pass by,the magnitude of financial influence of children product safety events decrease gradually.Existing researches are mainly about product recall while a product recall is a typical example of product safety crisis and there are other types of product safety events such as governmental quality inspection disqualification.Our study focuses on not only product recall but also inspection disqualification by government and social organizations.This study enriches the empirical study of product safety in China.In practice,its results can provide quantitative decision-making basis of quality management and crisis response for firms in children product industry.