Bauer College of Business
University of Houston
NBER Working Papers and Publications
|July 2011||How Do Firm Financial Conditions Affect Product Quality and Pricing?|
with Gordon M. Phillips: w17233
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 di...
Published: “How Do Firm Financial Conditions A ff ect Product Quality and Pricing?” with Giorgo Sertsios, Management Science , 2013, 59(8): 1764-1782.