How Do Firm Financial Conditions Affect Product Quality and Pricing?
研究航空业中财务困境与破产如何影响企业的产品质量和定价决策，发现财务困境降低质量但破产后质量回升，且困境中企业定价更激进。
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. This paper was accepted by Wei Jiang, finance.