Sales and consumer inventory

Temporary price reductions (sales) are common for many goods and naturally result in a large increase in the quantity sold. We explore whether the data support the hypothesis that these increases are, at least partly, due to demand anticipation: at low prices, consumers store for future consumption. This effect, if present, has broad economic implications. We test the predictions of an inventory model using scanner data with two years of household purchases. The results are consistent with an inventory model and suggest that static demand estimates may overestimate price sensitivity.     

Disclosure Prominence and the Quality of Non‐GAAP Earnings

The SEC prohibits the presentation of non‐GAAP measures before corresponding GAAP measures; however, a large proportion of non‐GAAP reporters present non‐GAAP EPS before GAAP EPS in their earnings announcements. This noncompliance raises questions about whether firms use prominence to highlight higher or lower quality non‐GAAP information. For firms reporting non‐GAAP EPS between 2003 and 2016, prominent non‐GAAP EPS is associated with higher quality non‐GAAP reporting. Further tests reveal that nonregulatory incentives, rather than regulatory costs, explain this relation. Specifically, prominence is associated with higher quality non‐GAAP reporting in settings where prominence is not regulated, investors ignore prominence when non‐GAAP reporting quality is lower, and the minority of firms using prominence to mislead exhibit characteristics associated with weaker investor monitoring. Overall, we provide evidence that regulatory noncompliance can reflect an intent to inform, and that most firms use prominence to highlight higher quality non‐GAAP information despite prohibitive regulation.     

Politicizing consumer credit

Powerful politicians can interfere with the enforcement of regulations. As such, expected political interference can affect constituents’ behavior. Using rotations of Senate committee chairs to identify variation in political power and expected regulatory relief, we study powerful politicians’ effect on consumer lending to communities protected by fair-lending regulations. We find a 7.5% reduction in credit access to minority neighborhoods in states with new committee chairs. Larger reductions occur in Community Reinvestment Act-eligible neighborhoods and when Senators serve on committees that oversee the enforcement of fair-lending laws. Banks headquartered in powerful Senators’ states are responsible for the reduction in credit access.     

Payday loans and consumer financial health

The annualized interest rate for a payday loan often exceeds 10 times that of a typical credit card, yet this market grew immensely in the 1990s and 2000s, elevating concerns about the risk payday loans pose to consumers and whether payday lenders target minority neighborhoods. This paper employs individual credit record data, and Census data on payday lender store locations, to assess these concerns. Taking advantage of several state law changes since 2006 and, following previous work, within-state-year differences in access arising from proximity to states that allow payday loans, I find little to no effect of payday loans on credit scores, new delinquencies, or the likelihood of overdrawing credit lines. The analysis also indicates that neighborhood racial composition has little influence on payday lender store locations conditional on income, wealth and demographic characteristics.     

Provider performance reports and consumer welfare

A provider's performance report consists of his service average outcome and volume. The two variables depend on the provider's private quality type and current demand, but he can raise his average outcome by dumping vulnerable consumers. Prospective consumers infer providers' qualities from their reports. Performance reporting drives some providers to dump consumers when competition is intense, but it may not reveal providers' qualities when their average quality is high. Statistical adjustment aiming at making reports independent of consumer characteristics can lead to more dumping, less informative reports, or both. There is more dumping when volume information is withheld and less dumping when ratings information is coarse.     

Domestic airline alliances and consumer welfare

This article investigates the consumer welfare consequences of the recent code‐share agreement between Continental Airlines and Northwest Airlines. We develop a discrete choice model based on individual flight characteristics. This structural model recognizes that consumers (i) may have heterogeneous preferences for flight attributes, and (ii) may face different prices for the same flight. The empirical methodology also deals with the measurement error problem stemming from the absence of consumer‐level data on prices. The estimation results suggest that, whereas the code‐share agreement did not impact consumers significantly on average, it increased the average surplus of connecting passengers but decreased the average surplus of nonstop passengers. Interestingly, the magnitude of our welfare results may be attributed in large part to changes in product characteristics other than prices.     

Financial literacy and consumer credit portfolios

We use survey data from a sample of UK households to analyse the relationship between financial literacy and consumer credit portfolios. We show that individuals who borrow on consumer credit exhibit worse financial literacy than those who do not. Borrowers with poor financial literacy hold higher shares of high cost credit (such as home collected credit, mail order catalogue debt and payday loans) than those with higher literacy. We also show that individuals with poor financial literacy are more likely to lack confidence when interpreting credit terms, and to exhibit confusion over financial concepts. They are also less likely to engage in behaviour which might help them to improve their awareness of the credit market.     

Price incentives and consumer payment behaviour

In this paper we estimate the effect of particular price incentives on consumer payment patterns using transaction-level data. We find that participation in a loyalty program and access to an interest-free period tend to increase credit card use at the expense of alternative payment methods, such as debit cards and cash. Interestingly though, the pattern of substitution from cash and debit cards differs according to the price incentive. An implication of the findings is that the Reserve Bank reforms of the Australian payments system are likely to have influenced observed payment patterns.     

国外金融消费权益保护改革进展及启示

加强金融消费权益保护成为危机后国际金融监管改革的重要共识。文章分别以美国、欧盟、英国和日本为代表介绍了国外金融消费权益保护改革取得的进展,在借鉴国外金融消费权益保护改革举措和发展方向的基础上,就完善我国金融消费权益保护工作提出相关建议。     

Lack of consumer confidence and stock returns

This paper investigates the link between the lack of consumer confidence and stock returns during market fluctuations. Using a Markov-switching framework, we first focus on whether the shock to consumer confidence has asymmetric effects on stock returns. We also examine whether the decreased confidence pushes the stock market into bear territory. Empirical evidence using monthly returns on Standard & Poor's S&P 500 price index suggests that market pessimism has larger impacts on stock returns during bear markets. Moreover, the lack of consumer confidence leads to a higher probability of switching to a bear market regime.     

Word-of-mouth communication and search

We develop a word-of-mouth search model where information flows from the old to the new generation for an experience good with unknown quality. We study the features of the social network that determine product quality and welfare and characterize the demand-side (under provision of search effort) and supply-side (inefficient entry by firms) factors that result in inefficiencies. One striking result is to show that the more connected but also the less-unequal a friendship network is (in the sense of second order stochastic dominance of the degree distribution), the less can disreputable (low-quality) firms thrive in equilibrium.     

Competition under consumer loss aversion

We address the effect of expectation‐based consumer loss aversion on firm strategy in imperfect competition. Consumers are fully informed about match value and price at the moment of purchase. However, some consumers are initially uninformed about their tastes and form a reference point consisting of an expected match value and price distribution, whereas others are perfectly informed all the time. We show that if firms have symmetric costs, a larger share of informed consumers leads to a more competitive outcome. The reverse holds if cost asymmetry in duopoly is sufficiently large.     

Informational synergies in consumer credit

We investigate whether lenders can realize informational synergies by simultaneously obtaining private information from different accounts of the same borrower. Synergies exist if such information is complementary to each other. We focus on consumer credit, using 3.5 million observations from checking accounts and credit card accounts of the same individuals during 2007–2014. First, activity from both accounts is complementary for estimating consumer default beyond credit scores, borrower characteristics and relationship characteristics. Checking accounts display warning indications about consumer default earlier and more accurately than credit card accounts. Second, decision errors are lower when lenders consider cross-product information. The evidence suggests significant informational synergies that are important for the supply and allocation of credit.     

Localization--the revolution in consumer markets

Standardization has been a powerful strategy in consumer markets, but it's reached the point of diminishing returns. And diversity is not the only chink in standardization's armor: Attempts to build stores in the remaining attractive locations often meet fierce resistance from community activists. From California to Florida to New Jersey, neighborhoods are passing ordinances that dictate the sizes and even architectural styles of new shops. Building more of the same--long the cornerstone of retailer growth--seems to be tapped out as a strategy. Of course, a company can't customize every element of its business in every location. Strategists have begun to use clustering techniques to simplify and smooth out decision making and to focus their efforts on the relatively small number of variables that usually drive the bulk of consumer purchases. The customization-by-clusters approach, which began as a strategy for grocery stores in 1995, has since proven effective in drugstores, department stores, mass merchants, big-box retailers, restaurants, apparel companies, and a variety of consumer goods manufacturers. Clustering sorts things into groups, so that the associations are strong between members of the same cluster and weak between members of different clusters. In fact, by centralizing data-intensive and scale-sensitive functions (such as store design, merchandise assortment, buying, and supply chain management), localization liberates store personnel to do what they do best: Test innovative solutions to local challenges and forge strong bonds with communities. Ultimately, all companies serving consumers will face the challenge of local customization. We are advancing to a world where the strategies of the most successful businesses will be as diverse as the communities they serve.     

Payment card rewards programs and consumer payment choice

By using a unique data set that contains detailed information about consumer payment choice and consumers’ attitudes toward each payment method, we estimate the effects of payment card rewards on consumer choice of payment methods. Our approach allows us to control for consumer heterogeneity. We find the effects of rewards to be statistically significant across five retail types. Our policy experiments suggest that for the sub-population who hold both credit and debit cards, removing rewards would increase their share of paper-based payment methods (i.e., cash and checks), measured in terms of in-store transactions, by no more than 4 percentage points.     

Managerial sentiment,consumer confidence and sector returns

This paper investigates the relationship between managerial sentiment and sector returns. Using UK monthly data from January 1985 to December 2014 and a sample of consumer and business confidence indicators provided by the European Commission, we provide novel evidence on how managerial and consumer sentiment indicators affect stock returns. We find no support for consumer confidence as a predictor of stock returns. However, managerial sentiment shows a significant impact on aggregate market and sector return indices. Furthermore, we find that parameter estimates for sector groupings are not consistent, implying that the sentiment-return relationship differs across sectors. We also find parameters are sensitive to industry characteristics. Importantly, the overall sentiment-return relationship is dominated by sentiment associated with manufacturing firms.     

State dependence and alternative explanations for consumer inertia

For many consumer packaged goods products, researchers have documented inertia in brand choice, a form of persistence whereby consumers have a higher probability of choosing a product that they have purchased in the past. We show that the finding of inertia is robust to flexible controls for preference heterogeneity and not due to autocorrelated taste shocks. We explore three economic explanations for the observed structural state dependence: preference changes due to past purchases or consumption experiences which induce a form of loyalty, search, and learning. Our data are consistent with loyalty, but not with search or learning. This distinction is important for policy analysis, because the alternative sources of inertia imply qualitative differences in firm's pricing incentives and lead to quantitatively different equilibrium pricing outcomes.     

Dormancy risk and expected profits of consumer loans

A bank that lends money to a household faces two types of risk. Frequently mentioned is the risk of default. Seldom referred to is the risk of an early redemption of the loan – leading to dormancy. In this paper, we model the transition of consumer loans from an active to a dormant state. To this end, we use data on 4786 individuals who were granted credit by a Swedish lending institution between September 1993 and August 1995 and estimate a semi-parametric duration model. We analyze the factors that determine the time to maturity on consumer loans and investigate the ability of the model to match the maturities observed in the data. Moreover, we derive the distribution of conditional expected durations of loans and show how a loan application can be evaluated by calculating its expected profit.