Stock market reaction to product-harm crisis response strategies

Abstract

Product-harm crises have detrimental effects on firm's sales, reputation, and financial value, requiring crisis managers to promptly adopt appropriate response strategies to mitigate these impacts. Situational Crisis Communication Theory (SCCT) guides managers to align responsibility attribution with response strategies. Using Chinese listed firms' product-harm crises sample from 2015 to 2021, this study analyzes the stock market's reaction to different response strategies. The event study method reveals that a passive strategy is more effective during the disclosure stage, and accept+no recall and deny+recall are conforming strategies during the initial response stage. Additionally, firms with a crisis history should assume greater responsibility when developing response strategies for product-harm crises, as crisis history amplifies negative effects. The results provide recommendations to help managers formulate appropriate strategies.