Hostname: page-component-78c5997874-mlc7c Total loading time: 0 Render date: 2024-10-31T09:45:48.066Z Has data issue: false hasContentIssue false
  • English
  • Français

Income Fluctuations and Firm Choice

Published online by Cambridge University Press:  06 July 2020

Scott R. Baker Open the ORCID record for Scott R. Baker [Opens in a new window] ,
Brian Baugh  and
Lorenz Kueng
Scott R. Baker*
Affiliation:
Northwestern University
Brian Baugh
Affiliation:
University of Nebraskabbaugh2@unl.edu
Lorenz Kueng
Affiliation:
Università della Svizzera Italiana, Swiss Finance Institute, Northwestern University lorenz.kueng@usi
*
s-baker@kellogg.northwestern (corresponding author)
Get access Rights & Permissions [Opens in a new window]

Abstract

How households shift spending across firms in response to income fluctuations is an important source of firm risk. Using transaction-level data, we study how households interact with the universe of retailers following income changes. We find that income increases within and across households result in substitution toward retailers in a category that are higher quality; smaller; more profitable; and have higher labor intensity, research and development (R&D) intensity, and equity betas. Although 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.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 56 , Issue 6 , September 2021 , pp. 2208 - 2236
Copyright
© The Author(s), 2020. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Footnotes

We are very grateful to Jarrad Harford (the editor) for guidance and detailed comments and an anonymous referee for useful suggestions. We would like to thank seminar participants at Northwestern, the Hoover Institution, the International Institute of Public Finance (IIPF), Universidad Catolica de Chile, and the Copenhagen Workshop on New Consumption Data for helpful feedback.

References

Adams, R.; Almeida, H.; and Ferreira, D.. “Understanding the Relationship between Founder–CEOs and Firm Performance.” Journal of Empirical Finance, 16 (2009), 136–150.CrossRefGoogle Scholar
Ait-Sahalia, Y.; Parker, J. A.; and Yogo, M.. “Luxury Goods and the Equity Premium.” Journal of Finance, 59 (2004), 2959–3004.CrossRefGoogle Scholar
Baker, S. R. “Debt and the Response to Household Income Shocks: Validation and Application of Linked Financial Account Data.” Journal of Political Economy, 126 (2018), 1504–1557.CrossRefGoogle Scholar
Baker, S. R., and Yannelis, C.. “Income Changes and Consumption: Evidence from the 2013 Federal Government Shutdown.” Review of Economic Dynamics, 23 (2017), 99–124.CrossRefGoogle Scholar
Bils, M., and Klenow, P. J.. “Quantifying Quality Growth.” American Economic Review, 91 (2001), 1006–1030.CrossRefGoogle Scholar
Blinder, A.; Canetti, E. R.; Lebow, D. E.; and Rudd, J. B.. Asking about Prices: A New Approach to Understanding Price Stickiness, New York, NY: Russell Sage Foundation (1998).Google Scholar
Bustamante, M. C., and Donangelo, A.. “Product Market Competition and Industry Returns.” Review of Financial Studies, 30 (2017), 4216–4266.CrossRefGoogle Scholar
Campbell, J. Y.; Lettau, M.; Malkiel, B. G.; and Xu, Y.. “Have Individual Stocks Become More Volatile? An Empirical Exploration of Idiosyncratic Risk.” Journal of Finance, 56 (2001), 1–43.CrossRefGoogle Scholar
Coibion, O.; Gorodnichenko, Y.; and Hong, G. H.. “The Cyclicality of Sales, Regular and Effective Prices: Business Cycle and Policy Implications.” American Economic Review, 105 (2015), 993–1029.CrossRefGoogle Scholar
Davis, S. J.; Haltiwanger, J.; Jarmin, R.; and Miranda, J.. “Volatility and Dispersion in Business Growth Rates: Publicly Traded versus Privately Held Firms.” NBER Macroeconomics Annual, 21 (2006), 107–179.CrossRefGoogle Scholar
Davis, S. J., and Kahn, J.. “Interpreting the Great Moderation: Changes in the Volatility of Economic Activity at the Macro and Micro Levels.” Journal of Economic Perspectives, 22 (2008), 155–180.CrossRefGoogle Scholar
Deaton, A. The Analysis of Household Surveys: A Microeconometric Approach to Development Policy, Baltimore, MD: Johns Hopkins University Press (1997).CrossRefGoogle Scholar
Deaton, A. “Measuring and Understanding Behavior, Welfare, and Poverty.” American Economic Review, 106 (2016), 1221–1243.CrossRefGoogle Scholar
Dupraz, S., A Kinked Demand Theory of Price-Rigidity, Ph.D. thesis, Columbia University (2016).Google Scholar
D’Acunto, F.; Liu, R.; Pflueger, C.; and Weber, M.. “Flexible Prices and Leverage.” Journal of Financial Economics, 129 (2018), 46–68.CrossRefGoogle Scholar
Einav, L.; Klenow, P. J.; Klopack, B.; Levin, J. D.; Levin, L.; and Best, W.. “Assessing the Gains from E-Commerce.” Working Paper, National Bureau of Economic Research (2018).Google Scholar
Eisfeldt, A. L., and Papanikolaou, D.. “Organization Capital and the Cross-Section of Expected Returns.” Journal of Finance, 68 (2013), 1365–1406.CrossRefGoogle Scholar
Fama, E. F., and French, K. R.. “The Cross-Section of Expected Stock Returns.” Journal of Finance, 47 (1992), 427–465.CrossRefGoogle Scholar
Fama, E. F., and French, K. R.. “New Lists: Fundamentals and Survival Rates.” Journal of Financial Economics, 73 (2004), 229–269.CrossRefGoogle Scholar
Fama, E. F., and French, K. R.. “Dissecting Anomalies.” Journal of Finance, 63 (2008), 1653–1678.CrossRefGoogle Scholar
Foster, L.; Haltiwanger, J.; and Syverson, C.. “The Slow Growth of New Plants: Learning about Demand?” Economica, 83 (2016), 91–129.CrossRefGoogle Scholar
Ganong, P., and Noel, P.. “Consumer Spending during Unemployment: Positive and Normative Implications.” American Economic Review, 109 (2019), 2383–2424.CrossRefGoogle Scholar
Gomes, J. F.; Kogan, L.; and Yogo, M.. “Durability of Output and Expected Stock Returns.” Journal of Political Economy, 117 (2009), 941–986.CrossRefGoogle Scholar
Gorodnichenko, Y., and Weber, M.. “Are Sticky Prices Costly? Evidence from the Stock Market.” American Economic Review, 106 (2016), 165–199.CrossRefGoogle Scholar
Hall, R. E. “General Equilibrium with Customer Relationships: A Dynamic Analysis of Rent-Seeking.” Working Paper, Society for Economic Dynamics (2008).Google Scholar
Herskovic, B. “Networks in Production: Asset Pricing Implications.” Journal of Finance, 73 (2018), 1785–1818.CrossRefGoogle Scholar
Herskovic, B.; Kelly, B.; Lustig, H.; and Nieuwerburgh, S. Van. “Firm Volatility in Granular Networks.” Working Paper, National Bureau of Economic Research (2017).Google Scholar
Jaimovich, N.; Rebelo, S.; and Wong, A.. “Trading Down and the Business Cycle.” Journal of Monetary Economics, 102 (2019), 96–121.CrossRefGoogle Scholar
Jappelli, T., and Pistaferri, L.. The Economics of Consumption: Theory and Evidence, New York, NY: Oxford University Press (2017).CrossRefGoogle Scholar
Kueng, L. “Excess Sensitivity of High-Income Consumers.” Quarterly Journal of Economics, 133 (2018), 1693–1751.CrossRefGoogle Scholar
Mastrobuoni, G., and Weinberg, M.. “Heterogeneity in Intra-Monthly Consumption Patterns, Self-Control, and Savings at Retirement.” American Economic Journal: Economic Policy, 1 (2009), 163–189.Google Scholar
Nevo, A., and Wong, A.. “The Elasticity of Substitution between Time and Market Goods: Evidence from the Great Recession.” International Economic Review, 60 (2018), 25–51.CrossRefGoogle Scholar
Olafsson, A., and Pagel, M.. “The Liquid Hand-to-Mouth: Evidence from Personal Finance Management Software.” Review of Financial Studies, 31 (2018), 4398–4446.CrossRefGoogle Scholar
Pan, Y., and Zinkhan, G. M.. “Determinants of Retail Patronage: A Meta-Analytical Perspective.” Journal of Retailing, 82 (2006), 229–243.CrossRefGoogle Scholar
Rotemberg, J. J. “Customer Anger at Price Increases, Changes in the Frequency of Price Adjustment and Monetary Policy.” Journal of Monetary Economics, 52 (2005), 829–852.CrossRefGoogle Scholar
Shapiro, J. “Is There a Daily Discount Rate? Evidence from the Food Stamp Nutrition Cycle.” Journal of Public Economics, 89 (2005), 303–325.CrossRefGoogle Scholar
Stephens, M. “3rd of the Month: Do Social Security Recipients Smooth Consumption between Checks?” American Economic Review, 93 (2003), 406–422.CrossRefGoogle Scholar
Stroebel, J., and Vavra, J.. “House Prices, Local Demand, and Retail.” Journal of Political Economy, 127 (2019), 1391–1436.CrossRefGoogle Scholar
Van Binsbergen, J. H. “Good-Specific Habit Formation and the Cross-Section of Expected Returns.” Journal of Finance, 71 (2016), 1699–1732.CrossRefGoogle Scholar
Supplementary material: PDF

Baker et al. supplementary material

Online Appendix

Download Baker et al. supplementary material(PDF)
PDF 130.1 KB