Impact of Financial Leverage on the Incidence and Severity of Product Failures: Evidence from Product Recalls

• 成果类型: Article
• 署名作者: Kini, Omesh; Shenoy, Jaideep; Subramaniam, Venkat
• 署名单位: University System of Georgia; Georgia State University; University of Connecticut; Tulane University
• 刊物名称: REVIEW OF FINANCIAL STUDIES
• ISSN/ISSBN: 0893-9454
• DOI: 10.1093/rfs/hhw092
• 发表日期: 2017
• 页码: 1790
• 关键词: capital structure; MARKET BEHAVIOR; AGENCY COSTS; firm; cash; determinants; OWNERSHIP; location; QUALITY; EXIT

摘要

We study the impact of the financial condition of firms on firms' ability to produce safer products that result in fewer recalls. Using a variety of tests, including two quasi-natural experiments that result in exogenous negative industry cash-flow shocks, we find that firms with higher leverage or distress likelihood have a greater probability of a product recall. These firms also face more frequent and severe recalls. Further, firms with more debt due at the onset of the financial crisis experience a greater likelihood and frequency of recalls. We conclude that a firm's financial condition has real effects that impact product safety.