When Recalls Signal Responsibility: Foreign Brand Advantage in Product Crisis Response

Although previous research has focused mainly on the negative consequences of recalls for affected firms, this study examines the dual signaling function of recalls and their heterogeneous effects across firm types and market contexts. We propose that product recalls not only convey failure but also serve as visible demonstrations of corporate safety responsibility (CSaR), and that the informational value of such signals varies by country of origin, with greater diagnostic value when baseline legitimacy is lower. By building on signaling theory and the literature on the liability of foreignness (LOF), we hypothesize that foreign brands face legitimacy deficits in host markets due to unfamiliarity and institutional distance. Accordingly, when a foreign brand issues a recall, this action provides stakeholders with new information that allows them to reevaluate the firm’s commitment to local safety standards. In contrast, similar compliance by domestic brands is likely to be seen as routine and thus less informative. Two boundary conditions are considered: regulatory stringency and cultural individualism. Under high regulatory stringency, meaningful variation in compliance behavior is reduced because recall procedures and timelines are standardized across firms. In more individualistic cultures, evaluative focus shifts from categorical judgments based on brand origin to firm-specific characteristics, thereby reducing the salience of foreign versus domestic distinctions and weakening the signaling value of recall actions. These hypotheses are tested with a panel dataset of 27 automotive brands in six major markets from 2007 to 2016. The results show that recall events negatively affect sales for domestic brands, but this effect is significantly reduced and, in some cases, reversed for foreign brands.