Effects of food recalls on retailers' stock price

Abstract

With the frequent food recall events, the public has grown increasingly aware of food safety problems in the United States and elsewhere. My project focused on whether food recall events have a significant effect on retailers’ stock price. To answer this question, I used the event study method, collected 9 retailers’ stock price data from Yahoo Finance and chose 8 major food recall events before 2006 and 2011. Previous studies have shown that the impact of product recall announcements on retailers’ financial value. My results indicate that food recall events do affect retailers’ stock price. For instance, the stock price of Kroger was affected significantly by Nestlé Toll House cookie dough event and the stock price of Whole Foods Market was affected significantly by Peanut Corporation of America peanut product recall. The degree of the effect was sensitive to the length of event window.