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Income Fluctuations and Firm Choice

Author

Listed:
  • 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)

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.

Suggested Citation

  • Scott R. Baker & Brian Baugh & Lorenz Kueng, 2020. "Income Fluctuations and Firm Choice," Swiss Finance Institute Research Paper Series 20-29, Swiss Finance Institute.
    • Handle: RePEc:chf:rpseri:rp2029
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    Keywords

    choice; retailer substitution; customer base; transactional data;
    All these keywords.

    JEL classification:

    • D10 - Microeconomics - - Household Behavior - - - General
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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