How Do Firm Financial Conditions Affect Product Quality and Pricing?

• 成果类型: Article
• 署名作者: Phillips, Gordon; Sertsios, Giorgo
• 署名单位: University of Southern California; University of Houston System; University of Houston
• 刊物名称: MANAGEMENT SCIENCE
• ISSN/ISSBN: 0025-1909
• DOI: 10.1287/mnsc.1120.1693
• 发表日期: 2013
• 页码: 1764-1782
• 关键词: finance; Corporate finance; Industrial Organization; market structure; Firm strategy; market performance; firm objectives; organization and behavior

摘要

We analyze the interaction of firm product quality and pricing decisions with financial distress and bankruptcy in the airline industry. We consider an airline's choices of quality and price as dynamic decisions that trade off current cash flows for future revenue. We examine how airline mishandled baggage, on-time performance, and pricing are related to financial distress and bankruptcy, controlling for the endogeneity of financial distress and bankruptcy. We find that an airline's quality decisions are differentially affected by financial distress and bankruptcy. Product quality decreases when airlines are in financial distress, consistent with financial distress reducing a firm's incentive to invest in quality. In contrast, in bankruptcy product quality increases relative to financial distress. In addition, we find that firms price more aggressively when in financial distress consistent with firms trying to increase short-term market share and revenues.