Bailing on the Car That Wasn't Bailed Out: Bounding Consumer Reactions to Financial Distress

58 Pages Posted: 23 Jan 2016

See all articles by Cristian Huse

Cristian Huse

Stockholm School of Economics; Swedish House of Finance

Nikita Koptyug

Research Institute of Industrial Economics (IFN)

Date Written: November 10, 2015

Abstract

This paper examines how consumers react to the financial distress of durable goods manufacturers by looking at the Swedish new car market. We employ a difference-in-differences matching methodology whereby we compare sales of carmaker Saab with those of a carefully constructed control group of substitute products. To account for possible substitution between products in the treatment and control groups, we propose and apply bounds to our difference-in-differences matching estimator. We then refine the bounds and provide conditions under which they depend only on the products’ own- and cross-price elasticities. We find that even accounting for potential substitution, there was a significant decrease in the sales of Saab following its filing for administration. These findings are robust to a number of robustness checks and alternative hypothesis

Keywords: Administration, Automobiles, Bankruptcy effects, Brand loyalty, Bounds, Consumer reaction, Consumer response, Difference-in-differences, Durable goods, Financial distress, Treatment effects

JEL Classification: C21, D12, D22, G32, G33, L62.

Suggested Citation

Huse, Cristian and Koptyug, Nikita, Bailing on the Car That Wasn't Bailed Out: Bounding Consumer Reactions to Financial Distress (November 10, 2015). IFN Working Paper No. 1093, Available at SSRN: https://ssrn.com/abstract=2719984 or http://dx.doi.org/10.2139/ssrn.2719984

Cristian Huse

Stockholm School of Economics ( email )

PO Box 6501
Stockholm, 11383
Sweden

Swedish House of Finance ( email )

Drottninggatan 98
111 60 Stockholm
Sweden

Nikita Koptyug (Contact Author)

Research Institute of Industrial Economics (IFN) ( email )

Box 55665
Grevgatan 34, 2nd floor
Stockholm, SE-102 15
Sweden

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
24
Abstract Views
363
PlumX Metrics