Question

Managerial Economics & Organizational Architecture (6th Edition)

Chapter 22, Problem 5AMD2

2. Most discussions of J&J’s handling of this tragedy have been laudatory, yet J&J’s stock price fell by more than $7. Does this mean that the stock market thinks J&J’s managers reacted poorly?

Answer 1

The information provided in the case does not give conclusive evidence that the stock market drop implies that investors are not believing in the wisdom of managers and they think J&J’s managers reacted poorly. It may be possible that the stock market performed poorly for the company even when the managers did not reacted the way they reacted or had taken a different action

Stock price fell, which can be reasoned for different events. One of them is tampering incident and the other is the reaction of the managers to the incident when the image of the company was tarnished. We cannot tell which event was responsible for the stock market fall unless we have a concrete information regarding these two events.