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

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  • Huse, Cristian
  • Koptyug, Nikita

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.

Suggested Citation

  • Huse, Cristian & Koptyug, Nikita, 2016. "Bailing on the car that wasn’t bailed out: bounding consumer reactions to financial distress," MPRA Paper 72796, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:72796
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    References listed on IDEAS

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    Cited by:

    1. Cristian Huse & Claudio Lucinda, 2014. "The Market Impact and the Cost of Environmental Policy: Evidence from the Swedish Green Car Rebate," Economic Journal, Royal Economic Society, vol. 124(578), pages 393-419, August.
    2. Epaulard, Anne & Zapha, Chloé, 2022. "Bankruptcy costs and the design of preventive restructuring procedures," Journal of Economic Behavior & Organization, Elsevier, vol. 196(C), pages 229-250.

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    More about this item

    Keywords

    Administration; Automobiles; Bankruptcy effects; Brand loyalty; Bounds; Consumer reaction; Consumer response; Difference-in-differences; Durable goods; Financial distress; Treatment effects.;
    All these keywords.

    JEL classification:

    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • L62 - Industrial Organization - - Industry Studies: Manufacturing - - - Automobiles; Other Transportation Equipment; Related Parts and Equipment

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