This study investigates the earnings management practices of firms around product recalls. In recent years, the management of earnings around firm-specific events has received considerable attention in the finance and accounting literature. New equity issues, mergers and acquisitions, share repurchases, and management buyouts are some events around which at least some firms have been shown to manage their earnings to achieve managements? objectives. Product recalls offer yet another interesting occasion when managers have incentives to cover up the true financial performance of their firms and mislead investors. In order to determine whether firms announcing product recalls manage earnings more aggressively than non-announcing firms, this study employs the cross-sectional version of the modified Jones (1991) model, as adapted by Teoh, Welch, and Wong (1998 a and b). In order to address the misspecification concern of the model, especially in the context of a performance-related event like product recall, we suggest a modification in the model. We show that the proposed change in the model not only better controls for event-specific working capital changes around recalls, it also increases the explanatory power of the model. Overall, our results suggest that managers tend to manage earnings upwards in quarters immediately preceding and following the recall announcement quarter. We also find weak evidence of downward earnings management in the quarter of recall. These results are in line with the predictions of theoretical models and the findings of past empirical studies in earnings management. The results of our research have important implications for investors and regulators.

<div>The first chapter quantitatively examines the impact of exporting countries' reputations for product quality on aggregate trade flows. I introduce a novel data set in which recall incidences retrieved from the Consumer Product Safety Commission are matched to U.S. import data from 1990-2009. Using a model of learning I construct a measure for exporter reputation where consumers internalize product recalls as bad signals. Structural estimation of the model finds that reputation is important and especially impactful for products used by children. The market share elasticity of exporter's reputation is around 1.49 across products, similar in magnitude to the average price elasticity, which is around 1.51. Improving reputation can increase export value, but reputation is sluggish: increasing reputation by 10\% can take decades for most exporters. Counterfactual exercises confirm that quality inspection institutions are welfare improving, and quality inspection is especially important for consumers of toys. </div><div> </div><div> The second chapter summarizes the correlation between export decisions of Chinese firms and product recalls for Chinese products. I use a new data set where I link recall data scraped from CPSC to monthly Chinese Customs Data. I found that recalls from previous months correlates negatively with the decision of export participation, but not with export value. </div><div> </div><div><br></div><div> The third chapter, coauthored with Kendall Kennedy and Xuan Jiang, analyzes how China's industrialization and the immediate export growth due to the Open Door Policy change Chinese teenagers' education decisions, which explains the education decline. We find that, middle school completion rates increased and high school completion rates decreased in response to export growth. This suggests a tradeoff between education and labor market opportunities in China. These education effects are more prominent for cohorts who were younger when China's Open Door Policy began, even though these teenagers also faced a stronger education system compared to the earlier cohorts. </div>

Business leaders increasingly grapple with longer and more complex supply chain nodes wrought by the globalization of corporate manufacturing processes. The flow of outsourced materials is also more vulnerable to high-profile product-harm crises, sabotage, product defect, and recall problems. The purpose of this single case study was to explore manufacturing strategies used by business leaders of an original equipment manufacturer (OEM) in the United States to minimize the defects in offshore-outsourced products. The sample was 2 OEM business leaders who have successfully reduced the defects in offshore-manufactured products in their Michigan facility. The conceptual framework was agency theory. Data were collected from observational field notes, company records, and transcripts of open-ended interviews. Data were coded and analyzed to identify emergent themes, which included factors the OEM considered in selecting offshore suppliers, strategies for minimizing defects, validation of the effectiveness of these strategies, and the development of trust and working partnerships with offshore suppliers. Reducing defect risks from outsourced products may decrease catastrophic fatalities and financial repercussions for businesses, and simultaneously improve consumer safety and trust as implications for social change.

The issue of food scandals originating from unsafe food has in recent years caught the attention of the public. Consequently, the number of food recalls has increased, and food retailers and food producers are getting questioned regarding their ability to provide consumers with safe food products. Thus, because the primary responsibility to deal with this problem is the food business operators who have real control over the products within the Food Supply Chain (FSC). Even though food safety has received more interest from academic researchers and practitioners in the latter years, we could identify that previous literature still lacks research on food recalls. In addition, prior research interprets food recalls as generalizable within the FSC and does not have its various product flows in mind. In order to fill the research gap, this study seeks to gain a deeper understanding of food recalls in the context of the different product flows within the FSC from a retailer perspective. Therefore, the purpose of this study was to investigate how the occurrence and the consequences of food recall differ across various product flows within the FSC by focusing on four elements. The elements include the challenges within the FSC to ensure food quality, the reasons behind food recall, the types of food recall, and the consequences they infer. The current study had finally answered the following research question: “How do the occurrence and the consequences of food recalls differ across various product flows within the FSC?” In order to answer the research question and address the purpose of the thesis, a qualitative study was conducted by focusing on Swedish food retailers and conducting interviews with responsible Purchasers within each of the product flows, and additionally, Quality Assurance Managers. The sample of the semi-structured interviews was selected based on the position and experience of food recalls within the retailers. This to assure that the interviewees possessed sufficient insights regarding the studied field to fulfill the purpose of the study and answer its research question. From the gathered data, several themes were derived through the thematic analysis, and the analysis and discussion regarding the elements led us to a conclusion. The result confirmed that the various product flows, and in some cases, even specific products within the flows, need to be taken into consideration when the occurrence and the consequences of food recalls are addressed within the FSC. This is because the different product flows include different products with different characteristics making them more or less complex to handle along the chain and when carrying out food recalls. Even though previous theories assume a general approach, the findings still confirmed the theories regarding the challenges within the FSC to ensure food quality, the reasons behind recalls, the types of recalls, and the consequences the recalls can infer. However, the main differences found between our study and prior research regarding the FSC were that supply chain-related reasons are more commonly related to food reclaims and that environmental consequences are considered an additional consequence of food recalls.