TitleThe Effect on Stockholder Wealth of Product Recalls and Government Action: The Case of Toyota’s Accelerator Pedal Recall
Publication TypeJournal Articles
Year of Publication2014
AuthorsGokhale, J, Brooks, R, Tremblay, VJ
JournalQuarterly Review of Economics and Finance
IssueNovember 2014
Date Published2014
KeywordsFinance, MBA

We analyze the effect of Toyota’s faulty accelerator pedal on stockholder wealth. Using the event study methodology, we show that a major recall in January of 2010 caused the company’s cumulative abnormal returns to fall by 19 percent. Continued concerns that Toyota was unable to identify and adequately fix the problem induced the National Highway Traffic Safety Administration to conduct its own investigation in March, 2010. The results of this government investigation exonerated the company and caused Toyota’s cumulative abnormal returns to rise by almost 9 percent. The Toyota case provides an opportunity to study a product recall with both company error and a government action that addressed concerns about the safety of the product.