Hiding operational problems that need to be revealed

What is it about?

Environmental accidents damage an offending firms operational reputation, legitimacy, and market valuation. This motivates them to actively avoid subsequent events which would provide additional evidence of operational incapability and social irresponsibility. We show that since firms have control of most product recall decisions, they prefer to avoid recalling products after experiencing an environmental accident.

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Why is it important?

Prior studies in operations management (OM) have not examined the impact of one negative event on another. This study finds that EAs tempt firms to hide operational problems that need to be revealed. While recalling fewer defective products is of concern to consumers and regulators, should EAs influence a broader set of discretionary operational decisions, such as closing/relocating a production facility, outsourcing production or conducting a layoff, study implications increase significantly.