 How Do Firm Financial Conditions Affect Product Quality and Pricing?Gordon Phillips and Giorgo Sertsios Management Science, 2013, vol. 59, issue 8, 1764-1782 Abstract: 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. Keywords: finance; corporate finance; industrial organization; market structure; firm strategy; market performance; firm objectives; organization and behavior (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:59:y:2013:i:8:p:1764-1782 Access Statistics for this article More articles in Management Science from INFORMS Contact information at EDIRC. |
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