Firms and Collective Reputation: The Volkswagen Emission Scandal as a Case Study

38 Pages Posted: 16 Feb 2018

See all articles by Rüdiger Bachmann

Rüdiger Bachmann

University of Notre Dame

Gabriel Ehrlich

University of Michigan at Ann Arbor

Dimitrije Ruzic

University of Michigan at Ann Arbor

Date Written: January 11, 2018

Abstract

This paper uses the 2015 Volkswagen emissions scandal as a natural experiment to provide causal evidence that group reputation externalities matter for firms. Our estimates show statistically and economically significant declines in the U.S. sales and stock returns of, as well as public sentiment towards, BMW, Mercedes-Benz, and Smart as a result of the Volkswagen scandal. In particular, the scandal reduced the sales of these non-Volkswagen German manufacturers by approximately 76,000 vehicles over the following year, leading to a loss of approximately $3.7 billion of revenue. Volkswagen’s malfeasance materially harmed the group reputation of “German car engineering” in the United States.

Keywords: automobiles, collective reputation, country reputation, difference-in-differences, event study, Google trends, firm reputation, natural experiment, reputation externalities, Twitter sentiment, Volkswagen emissions scandal

JEL Classification: D120, D900, F230, L140, L620

Suggested Citation

Bachmann, Rüdiger and Ehrlich, Gabriel and Ruzic, Dimitrije, Firms and Collective Reputation: The Volkswagen Emission Scandal as a Case Study (January 11, 2018). CESifo Working Paper Series No. 6805. Available at SSRN: https://ssrn.com/abstract=3124125

Rüdiger Bachmann (Contact Author)

University of Notre Dame ( email )

3026 Nanovic Hall
Notre Dame, IN 46556
United States

Gabriel Ehrlich

University of Michigan at Ann Arbor ( email )

110 Tappan Hall
855 S. University Ave
Ann Arbor, MI 48109
United States

Dimitrije Ruzic

University of Michigan at Ann Arbor ( email )

500 S. State Street
Ann Arbor, MI 48109
United States

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