The Volkswagen Emissions and Toyota Recall Scandal: An Application of the Situational Crisis Communication Theory

This paper applies an event study methodology on crisis situations to study immediate responses of corporate crisis communication on firms’ market value. The results are subject to the theoretical framework of the Situational Crisis Communication Theory by Timothy W. Coombs (W. T. Coombs, 2007). The theory suggests that crisis managers should match strategic responses to the level of crisis responsibility and reputational threat faced. The author chooses two automobile manufacturers, namely Toyota and Volkswagen, which recently faced major crises, due to an accident and intentional fraud respectively. The implemented strategies match the underlying theory. The Toyota case suffers of major limitations; the effect of interest cannot be isolated as confounding effects are present. The Volkswagen case reveals insignificant positive effects on two consecutive days following a public announcement, and a significant decrease in excess volatility after the event of interest