The Effect of Stock Ownership on Individual Spending and Loyalty
56 Pages Posted: 26 Feb 2021 Last revised: 13 Sep 2021
Date Written: February 10, 2021
In this study, we quantify the effects of receiving stocks from certain brands on spending in the brand's stores. We use data from a new FinTech company called Bumped that opens brokerage accounts for its users and rewards them with stocks when they shop at previously elected stores. For identification, we use 1) the staggered distribution of brokerage accounts over time after individuals sign up for a waitlist and 2) randomly distributed stock grants. We find that individuals spend 40% more per week at elected brands and stores after being allocated an account. In response to receiving a stock grant, individuals increase their weekly spending by 100% on the granted brands. Beyond documenting a causal link between stock ownership and individual spending, we show that weekly spending in certain brands of our users is strongly correlated with stock holdings of that brand by Robinhood brokerage clients. Finally, we present survey evidence to argue that loyalty is the dominant psychological mechanism explaining our findings. We thus provide micro evidence for the idea that brand loyalty is an intangible asset that leads to lower cash flow volatility.
Keywords: stock rewards and ownership, spending at owned brands, FinTech
JEL Classification: G5, D90, G41, D14
Suggested Citation: Suggested Citation