Bailing on the car that wasn’t bailed out: bounding consumer reactions to financial distress

Huse, Cristian and Koptyug, Nikita (2016): Bailing on the car that wasn’t bailed out: bounding consumer reactions to financial distress.

Abstract

This paper examines how consumers react to the financial distress of durable goods manufacturers by looking at the Swedish new car market. We employ a difference-in-differences matching methodology whereby we compare sales of carmaker Saab with those of a carefully constructed control group of substitute products. To account for possible substitution between products in the treatment and control groups, we propose and apply bounds to our difference-in-differences matching estimator. We then refine the bounds and provide conditions under which they depend only on the products’ own- and cross-price elasticities. We find that even accounting for potential substitution, there was a significant decrease in the sales of Saab following its filing for administration. These findings are robust to a number of robustness checks and alternative hypotheses.

• Item Type: MPRA Paper
• Language: English
• Keywords: Administration, Automobiles, Bankruptcy effects, Brand loyalty, Bounds, Consumer reaction, Consumer response, Difference-in-differences, Durable goods, Financial distress, Treatment effects.
• Subjects: C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C21 - Cross-Sectional Models ; Spatial Models ; Treatment Effect Models ; Quantile Regressions; D - Microeconomics > D1 - Household Behavior and Family Economics > D12 - Consumer Economics: Empirical Analysis; D - Microeconomics > D2 - Production and Organizations > D22 - Firm Behavior: Empirical Analysis; G - Financial Economics > G3 - Corporate Finance and Governance > G32 - Financing Policy ; Financial Risk and Risk Management ; Capital and Ownership Structure ; Value of Firms ; Goodwill; G - Financial Economics > G3 - Corporate Finance and Governance > G33 - Bankruptcy ; Liquidation; L - Industrial Organization > L6 - Industry Studies: Manufacturing > L62 - Automobiles ; Other Transportation Equipment ; Related Parts and Equipment

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