Navigating product risk: the role of innovation culture and product governance

Abstract Product risk represents a major operational risk, with significant consequences for a company. This study investigates whether corporate innovation culture affects product risk, measured by product controversies and recalls. Using data from US-listed companies between 2001 and 2018, we find that a stronger innovation culture is positively associated with increased product controversies and recalls. This effect is more pronounced in firms with innovation-oriented competitive strategies. However, management control and governance factors, including ISO9000 quality management system, vertical integration within the supply chain, and institutional investor ownership, can effectively mitigate these risks. Further, on average, the two opposite moderating effects offset each other. Overall, this study underscores the potential adverse effect of innovation culture on product risk and highlights the role of internal and external control measures in managing these operational challenges.