How Does Bonus Payment Affect the Demand for Auto Loans and Their Delinquency?

forthcoming, Journal of Marketing Research

45 Pages Posted: 25 Jan 2018 Last revised: 30 Jun 2021

See all articles by Zhenling Jiang

Zhenling Jiang

University of Pennsylvania - The Wharton School

Dennis Zhang

Washington University in St. Louis - John M. Olin Business School

Tat Chan

Washington University in St. Louis - John M. Olin Business School

Date Written: March 22, 2021

Abstract

This paper studies how receiving a bonus changes the consumers' demand for auto loans and the risk of future delinquency. Unlike traditional consumer products, auto loans have a long-term impact on consumers’ financial state because of the monthly payment obligation. Using a large consumer panel data set of credit and employment information, the authors find that receiving a bonus increases auto loan demand by 21 percent. These loans, however, are associated with higher risk, as the delinquency rate increases by 18.5-31.4 percent depending on different measures. In contrast, an increase in consumers' base salary will increase the demand for auto loans but not the delinquency. By comparing consumers with bonuses with those without bonuses, the authors find that bonus payments lead to both demand expansion and demand shifting on auto loans. The empirical findings help shed light on how consumers make financial decisions and have important implications for financial institutions on when demand for auto loans and the associated risk arise.

Keywords: Consumer Financial Decision Making, Bonus, Auto Loan Demand, Delinquency Risk

Suggested Citation

Jiang, Zhenling and Zhang, Dennis and Chan, Tat, How Does Bonus Payment Affect the Demand for Auto Loans and Their Delinquency? (March 22, 2021). forthcoming, Journal of Marketing Research, Available at SSRN: https://ssrn.com/abstract=3101132 or http://dx.doi.org/10.2139/ssrn.3101132

Zhenling Jiang (Contact Author)

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

Dennis Zhang

Washington University in St. Louis - John M. Olin Business School ( email )

One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States

Tat Chan

Washington University in St. Louis - John M. Olin Business School ( email )

One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States

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