Do Regulators’ Defect Investigations Deter Manufacturers from Procrastinating Recalls? - The Case of U.S. Automobile Recalls

This paper examines whether a regulator’s investigative actions eliminate manufacturers’ procrastination in issuing recalls. For our analysis, we employ zero-truncated negative binomial regression models. We find that manufacturers generally tend to procrastinate recalls if the defects are riskier. This procrastination occurs regardless of whether recalls are influenced or uninfluenced. If the regulator conducts its investigation, however, the procrastination occurs only during the time before the investigation begins. It is because manufacturers are uncertain if the investigation will occur and result in a recall. Once that investigation takes place, it results in mandatory recalls. Thus, such an investigation helps to eliminate manufacturer procrastination. After the investigation begins, the time from the investigation to the recall announcement decreases if the defects are less hazardous. However, it still increases if the defects are riskier and may cause fatalities.