Income Fluctuations and Firm Choice

46 Pages Posted: 4 Mar 2020 Last revised: 4 May 2020

See all articles by Scott R. Baker

Scott R. Baker

Northwestern University, Kellogg School of Management, Department of Finance

Brian Baugh

University of Nebraska at Lincoln

Lorenz Kueng

University of Lugano - Faculty of Economics; Swiss Finance Institute; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR); Northwestern University - Kellogg School of Management

Date Written: December 19, 2019

Abstract

How households shift spending across firms in response to income fluctuations is an important source of risk to individual firms. Using transaction-level data, we study how households interact with the universe of retailers following changes in income. We find that increases in income, both within and across households, result in substitution towards retailers in a category that are higher quality, smaller, more profitable, and have higher labor intensity, R&D intensity, and equity betas. While not all shifts are economically large, they do not average out across retailers. Thus, retailer choice has implications for key financial and macroeconomic outcomes such as aggregate profitability and labor demand.

Keywords: choice, retailer substitution, customer base, transactional data

JEL Classification: D10, D22, L11

Suggested Citation

Baker, Scott R. and Baugh, Brian and Kueng, Lorenz, Income Fluctuations and Firm Choice (December 19, 2019). Swiss Finance Institute Research Paper No. 20-29, Available at SSRN: https://ssrn.com/abstract=3533766 or http://dx.doi.org/10.2139/ssrn.3533766

Scott R. Baker (Contact Author)

Northwestern University, Kellogg School of Management, Department of Finance ( email )

Evanston, IL 60208
United States

Brian Baugh

University of Nebraska at Lincoln ( email )

Lincoln, NE 68588
United States

Lorenz Kueng

University of Lugano - Faculty of Economics

Via Giuseppe Buffi 13
Lugano, TI 6904
Switzerland

HOME PAGE: http://www.usi.ch/en

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

HOME PAGE: http://www.sfi.ch/en/

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

HOME PAGE: http://www.nber.org/

Centre for Economic Policy Research (CEPR)

London
United Kingdom

HOME PAGE: http://cepr.org/

Northwestern University - Kellogg School of Management

2001 Sheridan Road
Evanston, IL 60208
United States
+1 (847) 491-7843 (Phone)
+1 (847) 491-5719 (Fax)

HOME PAGE: http://www.kellogg.northwestern.edu/

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
44
Abstract Views
523
PlumX Metrics