Abstract
This study examines the stock market's reaction to food tampering incidents to calculate the cost of such incidents to shareholders. It found that a firm loses approximately US$613 million in equity value on the day that news of a tampering incident is made public. The targeted firm also incurs additional costs that are associated with extra couponing to attract consumers after a tampering incident, litigation costs, and in some cases costs associated with removing the product from the market. Because food tampering incidents seem to only occur while the food item is in “the stream of commerce” and outside the manufacturer's direct control, the use of surveillance along the distribution channel and consumer education could be helpful in averting further incidents and possibly deaths.
Notes
1 See for example the discussions leading to the enactment of the Federal Anti-Tampering Act of 1983 (United States Congress, Citation1984).
2 The expression “the stream of commerce” as used here is from a celebrated U.S. Supreme Court case: World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286 (1980).
3 For additional information see http://www.crsp.com/
4 A list of notorious tampering cases compiled by Cheung (Citation2010) shows that slivers of glass, razor blades, pins, and caustic soda were found in baby foods made by H. J. Heinz and Cow & Gate in the United Kingdom in 1989. A patron reported finding pellets of rat poison in her soup in a Sizzler's restaurant in Queensland, Australia in 2006 and 30 people were hospitalized in 20 Italian cities in 2003 after drinking bottled water contaminated with acetone, bleach, and ammonia.