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Firms and Collective Reputation: a Study of the Volkswagen Emissions Scandal

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  • Bachmann, Rüdiger
  • Ehrlich, Gabriel
  • Ruzic, Dimitrije
  • Fan, Ying
Abstract
This paper uses the 2015 Volkswagen emissions scandal as a natural experiment to provide evidence that collective reputation externalities matter for firms. We find that the Volkswagen scandal reduced the U.S. sales of the other German auto manufacturers— BMW, Mercedes-Benz, and Smart—by about 105,000 vehicles worth $5.2 billion. The decline was principally driven by an adverse reputation spillover, which was reinforced by consumer substitution away from diesel vehicles and was partially offset by substitution away from Volkswagen. These estimates come from a model of vehicle demand, the conclusions of which are also consistent with difference-in-differences estimates. We provide direct evidence on internet search behavior and consumer sentiment displayed on social media to support our interpretation that the estimates reflect a reputation spillover.

Suggested Citation

  • Bachmann, Rüdiger & Ehrlich, Gabriel & Ruzic, Dimitrije & Fan, Ying, 2017. "Firms and Collective Reputation: a Study of the Volkswagen Emissions Scandal," CEPR Discussion Papers 12504, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:12504
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    Cited by:

    1. Yoseph, Nir Shlomo, 2018. "The Impact of Environmental Fraud on the Used Car Market: Evidence from Dieselgate," CEPR Discussion Papers 12899, C.E.P.R. Discussion Papers.
    2. Itai Ater & Nir S. Yoseph, 2022. "The Impact of Environmental Fraud on the Used Car Market: Evidence from Dieselgate," Journal of Industrial Economics, Wiley Blackwell, vol. 70(2), pages 463-491, June.
    3. Inge van den Bijgaart & Davide Cerruti, 2024. "The Effect of Information on Market Activity: Evidence from Vehicle Recalls," The Review of Economics and Statistics, MIT Press, vol. 106(1), pages 230-245, January.
    4. Anja Kukuvec & Harald Oberhofer, 2018. "The propagation of business sentiment within the European Union," Department of Economics Working Papers wuwp257, Vienna University of Economics and Business, Department of Economics.
    5. Eugster, Nicolas & Kowalewski, Oskar & Śpiewanowski, Piotr, 2024. "Internal governance mechanisms and corporate misconduct," International Review of Financial Analysis, Elsevier, vol. 92(C).
    6. repec:ies:wpaper:f202208 is not listed on IDEAS
    7. Ale-Chilet, Jorge & Chen, Cuicui & Li, Jing & Reynaert, Mathias, 2021. "Colluding Against Environmental Regulation," TSE Working Papers 21-1204, Toulouse School of Economics (TSE).
    8. Che, X. & Katayama, H. & Lee, P., 2020. "Willingness to Pay for Brand Reputation: Lessons from the Volkswagen Diesel Emissions Scandal," Working Papers 20/02, Department of Economics, City University London.
    9. Hasan, Iftekhar & Noth, Felix & Tonzer, Lena, 2023. "Cultural norms and corporate fraud: Evidence from the Volkswagen scandal," Journal of Corporate Finance, Elsevier, vol. 82(C).
    10. Jin, Yu & Zhou, Jiehong & Ye, Juntao, 2023. "Value of certification in collective reputation crises: Evidence from Chinese dairy firms," Food Policy, Elsevier, vol. 121(C).
    11. Kirchhain, Heiko & Mutl, Jan & Zietz, Joachim, 2021. "Spillover effects of company news across real estate markets and causal impact analysis," Journal of Housing Economics, Elsevier, vol. 54(C).
    12. Zhu, Han & Li, Tong & Tang, Jiafu & Huang, Weixiang, 2023. "Corporate social responsibility strategies in competition and their implications," International Journal of Production Economics, Elsevier, vol. 265(C).
    13. Rogers A Lumenyela & Provident Dimosso & Tafuteni Chusi, 2023. "Private- Cooperatives Synergy in the Face of Agricultural Policy Changes: Moral Hazard Behavior Ameliorated? An Experience from Coffee Cooperatives in Southern Highlands, Tanzania," Journal of Economics and Behavioral Studies, AMH International, vol. 14(4), pages 11-21.
    14. Oskar Kowalewski & Nicolas Eugster & Piotr Spiewanowski, 2022. "This study aims to provide new evidence linking internal corporate governance mechanisms and corporate misconduct, using a sample of 2,844 public US companies during the period 2007-2019. The results ," Working Papers 2022-ACF-05, IESEG School of Management.
    15. Hasan, Iftekhar & Noth, Felix & Tonzer, Lena, 2019. "Thou shalt not bear false witness against your customers: Cultural norms and the Volkswagen scandal," IWH Discussion Papers 21/2019, Halle Institute for Economic Research (IWH).
    16. Brian W. Jacobs & Vinod R. Singhal, 2020. "Shareholder Value Effects of the Volkswagen Emissions Scandal on the Automotive Ecosystem," Production and Operations Management, Production and Operations Management Society, vol. 29(10), pages 2230-2251, October.
    17. Jie Bai & Ludovica Gazze & Yukun Wang, 2019. "Collective Reputation in Trade: Evidence from the Chinese Dairy Industry," CID Working Papers 366, Center for International Development at Harvard University.
    18. Yasemin Lheureux, 2024. "Predictive insights: leveraging Twitter sentiments and machine learning for environmental, social and governance controversy prediction," Journal of Computational Social Science, Springer, vol. 7(1), pages 23-44, April.
    19. Jie Bai & Ludovica Gazze & Yukun Wang, 2019. "Collective Reputation in Trade: Evidence from the Chinese Dairy Industry," NBER Working Papers 26283, National Bureau of Economic Research, Inc.
    20. Bruce Lyons & Robert Sugden, 2021. "Transactional fairness and pricing practices in consumer markets," Working Paper series, University of East Anglia, Centre for Competition Policy (CCP) 2021-03, Centre for Competition Policy, University of East Anglia, Norwich, UK..
    21. Timo Meynhardt & Pepe Strathoff & Andreas Fröhlich & Steven A. Brieger, 2019. "Same Same but Different: the Relationship Between Organizational Reputation and Organizational Public Value," Corporate Reputation Review, Palgrave Macmillan, vol. 22(4), pages 144-158, November.
    22. In Kyung Kim & Kyoo il Kim, 2022. "No Beer No Friends: Quantifying the Effect of the Beer Boycott," Journal of Industrial Economics, Wiley Blackwell, vol. 70(3), pages 711-751, September.
    23. Bruce Lyons & Robert Sugden, 2020. "Transactional fairness and unfair price discrimination in consumer markets," Working Paper series, University of East Anglia, Centre for Competition Policy (CCP) 2020-07, Centre for Competition Policy, University of East Anglia, Norwich, UK..

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    More about this item

    Keywords

    Automobiles; Collective reputation; Demand estimation; Difference-indifferences; Google trends; Reputation externalities; Twitter sentiment; Volkswagen emissions scandal;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
    • L62 - Industrial Organization - - Industry Studies: Manufacturing - - - Automobiles; Other Transportation Equipment; Related Parts and Equipment

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