The Effect of Stock Ownership on Individual Spending and Loyalty

67 Pages Posted: 22 Feb 2021 Last revised: 27 Feb 2021

See all articles by Paolina C. Medina

Paolina C. Medina

Texas A&M University

Vrinda Mittal

Columbia Business School, Columbia University in the City of New York

Michaela Pagel

Columbia University - Columbia Business School

Multiple version iconThere are 2 versions of this paper

Date Written: February 2021

Abstract

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 stock ownership drives brand loyalty, which is an intangible asset that leads to lower firm cash flow volatility.

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Suggested Citation

Medina, Paolina C. and Mittal, Vrinda and Pagel, Michaela, The Effect of Stock Ownership on Individual Spending and Loyalty (February 2021). NBER Working Paper No. w28479, Available at SSRN: https://ssrn.com/abstract=3790217

Paolina C. Medina (Contact Author)

Texas A&M University ( email )

430 Wehner
College Station, TX 77843-4218
United States
2248030929 (Phone)

Vrinda Mittal

Columbia Business School, Columbia University in the City of New York ( email )

3022 Broadway
New York, NY 10027
United States
10027 (Fax)

HOME PAGE: http://www.vrindamittal.com

Michaela Pagel

Columbia University - Columbia Business School ( email )

3022 Broadway
New York, NY 10027
United States

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