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Recall and Response: Relationship Adjustments to Adverse Information Shocks

March 2020

Written by: Emek Basker, Fariha Kamal

Working Paper Number:

CES-20-13R

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.

Document Tags and Keywords

Keywords Keywords are automatically generated using KeyBERT, a powerful and innovative keyword extraction tool that utilizes BERT embeddings to ensure high-quality and contextually relevant keywords.

By analyzing the content of working papers, KeyBERT identifies terms and phrases that capture the essence of the text, highlighting the most significant topics and trends. This approach not only enhances searchability but provides connections that go beyond potentially domain-specific author-defined keywords.
:
sale, commerce, manufacturer, product, shipment, inventory, retailer, consumer, supplier, buyer, merchandise

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:
Bureau of Labor Statistics, County Business Patterns, Business Register, Census Bureau Disclosure Review Board, Longitudinal Firm Trade Transactions Database, Disclosure Review Board, Customs and Border Protection, Indian Health Service, Michigan Institute for Data Science

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