Corporate Motivations of Product Recall Strategy: Exploring the Role of Corporate Social Responsibility in Stakeholder Engagement

Prior evidence shows voluntary recalls do not lead to better abnormal stock returns when compared with involuntary ones, although they intend to convey positive signals. This puzzling evidence can be attributed to the ignorance of information uncertainty associated with different product recall strategies. Because of the mixed managerial motives inherent in business strategy, voluntary recalls may involve greater information uncertainty than involuntary ones that prevent investors from receiving the intended positive messages. This paper argues that corporate social responsibility (CSR) establishes a firm's presence in stakeholder engagement and plays a crucial role in certifying information conveyed by voluntary product recalls. The findings suggest that firms with better CSR performance receive significantly greater firm value change than those with poor CSR performance upon the announcements of voluntary recalls. Besides, the CSR effect is mainly driven by the firm's engagement in technical CSR activities because of the direct dialogues with stakeholders caring about products.