The role of social media and brand equity during a product recall crisis: A shareholder value perspective

Abstract

Utilizing an event study methodology of 185 product recall announcements, this study examines to what extent social media hurts a company's shareholder value in the event of a product recall.In addition, we explore whether a company's brand equity and engagement in online chatter potentially mitigate the negative effects of social media surrounding the recall. We operationalize four metrics of online word-of-mouth (WOM) that may moderate negative product recall effects: volume, valence, growth rate, and breadth. The findings suggest that product recalls result in significantly negative abnormal returns for firms. Furthermore, the volume, valence and growth rate of online WOM exacerbate this negative effect of a product recall on firm value. Most importantly, we find negative effects of the volume and the valence of online WOM on firm value are lower for brands with strong brand equity. Surprisingly, we find no effect of company involvement in mitigating the potential negative effects of social media during a product recall. Our findings highlight the threats of product recalls and demonstrate that building brand equity may help protect a company in the social media environment.

What could possibly go wrong? A multi-panel Delphi study of organizational social media risk

“…Social media is perceived as an intimate technology for fostering relationships and growing closer through frequent interaction; and we view the risks associated with these relationships and interactions as social in nature (i.e., social risks). The social risk dimension focuses on organizational risks associated with improper information disclosure, faulty business decisions, social engineering attacks, productivity losses, damage to professional and organizational reputation, cyber-stalking and bullying, or damage to consumer or organizational confidence due to the actions of organizational personnel (Helm and Jones 2010;Kane et al 2009;Krasnova et al 2009;van Zyl 2009;Hsu and Lawrence 2015;Byrd 2012). Central to these risks is the organization's employee orientation where the risk is introduced by human action or inaction, whether on behalf of the organization, or as an individual that may be perceived as representing the organization.…”

Enhancing Brand Awareness, Reputation and Loyalty: The Role of Social Media

“…In this regard, a number of theoretical lens and various contexts have been used to investigate the effect of social media on different branding constructs (Yuksel, Milne, & Miller, 2016). In fact, many studies have analyzed customers' perceptions of the effect of social media on brand engagement (Hollebeek, Glynn, & Brodie, 2014;Laroche, Habibi, & Richard, 2013), on brand communities (Heydari & Laroche, 2018), on brand trust (Habibi, Laroche, & Richard, 2014) and on brand equity (Hsu & Lawrence, 2016). However, little attention has been devoted to the contribution of social media activities to brand performances from a managerial perspective, and the effectiveness of social media usage and which managerial choices lead to better outcomes are still not clear (Brodie, Hollebeek, Juric, & Ilic, 2011;Godey et al, 2016).…”

Volkswagen’s Diesel Emission Scandal: Analysis of Facebook Engagement and Financial Outcomes

“…This is evidence of strong brand equity that VW were able to recover those sales numbers so quickly after the diesel scandal. This was proven by Hsu & Lawrence [11,15] that high brand equity firms were able to withstand negative word-of-mouth better than low equity firms, where firms can use the high equity as a buffer in relation to crisis. Proposition 3 is supported because the positive sentiments outweighs the negative sentiments after VW apologizes.…”