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Firms and Collective Reputation: the Volkswagen Emissions Scandal as a Case Study

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  • Bachmann, R�diger
  • Ehrlich, Gabriel
  • Ruzic, Dimitrije

Abstract

This paper uses the 2015 Volkswagen emissions scandal as a natural experiment to provide causal evidence that group reputation externalities matter for firms. Our estimates show statistically and economically significant declines in the U.S. sales and stock returns of, as well as public sentiment towards, BMW, Mercedes-Benz, and Smart as a result of the Volkswagen scandal. In particular, the scandal reduced the sales of these non-Volkswagen German manufacturers by approximately 76,000 vehicles over the following year, leading to a loss of approximately $3.7 billion of revenue. Volkswagen's malfeasance materially harmed the group reputation of "German car engineering" in the United States.

Suggested Citation

  • Bachmann, R�diger & Ehrlich, Gabriel & Ruzic, Dimitrije, 2017. "Firms and Collective Reputation: the Volkswagen Emissions Scandal as a Case Study," CEPR Discussion Papers 12504, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:12504
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    References listed on IDEAS

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    Cited by:

    1. Ater, Itai & Yosef, Nir, 2018. "The Impact of Product Recalls on the Secondary Market:Evidence from Dieselgate," CEPR Discussion Papers 12899, C.E.P.R. Discussion Papers.
    2. Anja Kukuvec & Harald Oberhofer, 2018. "The propagation of business sentiment within the European Union," Department of Economics Working Papers wuwp257, Vienna University of Economics and Business, Department of Economics.

    More about this item

    Keywords

    automobiles; collective reputation; country reputation; Difference-in-Differences; event study; firm reputation; Google trends; Natural Experiment; reputation externalities; Twitter sentiment;

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • L62 - Industrial Organization - - Industry Studies: Manufacturing - - - Automobiles; Other Transportation Equipment; Related Parts and Equipment

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