Do CEO characteristics matter in product recalls?

Abstract

This study examines the effect of CEO characteristics such as gen-der, age, tenure, functional background, stock ownership, com-pensation scheme and dual role on the stock market returns of automobile companies, around the announcement of product recalls. Using an event study, for a sample of 2,576 product recalls in the US automobile industry, between January 2010 and June 2021, we observe that the stock market’s reaction to a product recall announcement is negative. However, the impacts on the cumulative abnormal returns around the announcement of prod-uct recalls of the company’s CEO being female, the CEO tenure, the CEO having an operations or marketing background, the ratio of CEO long-term compensation to total compensation and the CEO and Chairperson being the same person are all positive and statistically significant, showing that these CEO characteristics mitigate the negative effects on a company’s financial value caused by product recalls.