Firm uncertainty and households: Spending, savings, and risks

Iván Alfaro and Hoonsuk Park

Journal of Financial Economics, 2025, vol. 172, issue C

Abstract: Using daily banking and credit card data for thousands of households linked to U.S. publicly listed employers, we find novel evidence that firm-specific uncertainty persistently reduces future spending and spurs precautionary savings. A one-standard-deviation rise in option-implied firm volatility—akin to the S&P 500 VIX—predicts a $106 monthly spending drop (8 hours of wages) and a $193 increase in bank balances, reflecting notable cutbacks in typical non-durable goods and services. The mechanism operates through heightened household risks: firm uncertainty expands both income and consumption risk over the next year, with the largest effects among lower and top earners (notably the top 1%). Employers only partly shield earnings, while households only partly self-insulate consumption risk via smoothing channels. Detrimental uncertainty effects on households are stronger than firm stock price declines.

Keywords: Uncertainty; Households; Spending; Precautionary savings; Income risk; Consumption risk (search for similar items in EconPapers)
JEL-codes: D10 D80 E03 E21 E32 E44 G02 G30 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:172:y:2025:i:c:s0304405x25001515

DOI: 10.1016/j.jfineco.2025.104143

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