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Bailing On the Car That Wasn't Bailed Out: Bounding Consumer Reactions to Financial Distress

Author

Listed:
  • Huse, Cristian

    (Stockholm School of Economics)

  • Koptyug, Nikita

    (Research Institute of Industrial Economics (IFN))

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 hypothesis.

Suggested Citation

  • Huse, Cristian & Koptyug, Nikita, 2015. "Bailing On the Car That Wasn't Bailed Out: Bounding Consumer Reactions to Financial Distress," Working Paper Series 1093, Research Institute of Industrial Economics.
    • Handle: RePEc:hhs:iuiwop:1093
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    Cited by:

    1. 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.
    2. 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.

    More about this item

    Keywords

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    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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