Recall and Response: Relationship Adjustments to Adverse Information Shocks

Emek Basker and Fariha Kamal

Working Papers from U.S. Census Bureau, Center for Economic Studies

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.

Keywords: Buyer-supplier relationships; information flows; firm boundary; recalls; consumer products (search for similar items in EconPapers)
JEL-codes: F14 F23 L14 L15 (search for similar items in EconPapers)
Pages: 64 pages
Date: 2020-03
New Economics Papers: this item is included in nep-com and nep-ind
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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https://www2.census.gov/ces/wp/2020/CES-WP-20-13R.pdf Revised version, 2021 (application/pdf)
https://www2.census.gov/ces/wp/2020/CES-WP-20-13.pdf First version, 2020 (application/pdf)

Related works:
Journal Article: Recall and response: Relationship adjustments to adverse information shocks (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:cen:wpaper:20-13

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