Making Causal Inferences in Small Samples Using Synthetic Control Methodology: Did Chrysler Benefit from Government Assistance?

47 Pages Posted: 23 Aug 2012 Last revised: 14 Aug 2013

See all articles by Adam Fremeth

Adam Fremeth

University of Western Ontario - Richard Ivey School of Business

Guy L. F. Holburn

University of Western Ontario - Richard Ivey School of Business

Brian Kelleher Richter

University of Texas at Austin - Red McCombs School of Business

Date Written: July 23, 2013

Abstract

We introduce synthetic control analysis to management research. This recently developed statistical methodology overcomes challenges to causal inference in contexts constrained by small samples or few occurrences of the phenomenon of interest. Synthetic control constructs a replica of a focal firm, or other observation unit, based on a weighted combination of untreated firms with similar attributes within the sample population. The method quantifies the magnitude and direction of a treatment effect by comparing the actual performance of a focal unit to its counterfactual replica without treatment. As an illustration, we assess the impact of government intervention in the auto sector on the performance of Chrysler which, following the financial crisis, accepted government support in return for Treasury oversight. The synthetic Chrysler we construct — representing the firm’s estimated performance without government intervention — sold 29% more vehicles in the U.S. than did the actual firm during the intervention period.

Keywords: Synthetic Control, Counterfactual Methodology, Government Intervention, TARP, Automobile Industry, Case Study Methods

JEL Classification: M00, K00, L1, L2, L9, H1, H5, C4

Suggested Citation

Fremeth, Adam and Holburn, Guy L. F. and Richter, Brian Kelleher, Making Causal Inferences in Small Samples Using Synthetic Control Methodology: Did Chrysler Benefit from Government Assistance? (July 23, 2013). Available at SSRN: https://ssrn.com/abstract=2135294 or http://dx.doi.org/10.2139/ssrn.2135294

Adam Fremeth

University of Western Ontario - Richard Ivey School of Business ( email )

1151 Richmond Street North
London, Ontario N6A 3K7
Canada

Guy L. F. Holburn

University of Western Ontario - Richard Ivey School of Business ( email )

1151 Richmond Street North
London, Ontario N6A 3K7
Canada

Brian Kelleher Richter (Contact Author)

University of Texas at Austin - Red McCombs School of Business ( email )

2100 Speedway
B6500, CBA 5.250
Austin, TX 78712
United States
512-232-6751 (Phone)

HOME PAGE: http://briankrichter.com/

Register to save articles to
your library

Register

Paper statistics

Downloads
391
Abstract Views
1,906
rank
75,926
PlumX Metrics