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

Bachmann, Ruediger; Ehrlich, Gabriel; Fan, Ying; Ruzic, Dimitrije

doi:10.3386/w26117

Cited by 25 publications

(31 citation statements)

References 46 publications

(34 reference statements)

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“…Major coverage was on 21st September 2015, although there had been hints of the problem in the preceding year. The full story may be found in Bachmann et al (2017), and also in numerous news reports by googling Volkswagen Emissions Scandal. The VW share price suffered greatly, as shown in Fig.…”

Section: Examples Of Shock Delivery: Financial Datamentioning

confidence: 99%

Systemic shock propagation in a complex system

Mitic

2019

Soft Comput

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We study the effects of delivering a shock to a complex system comprising components ('agents') that interact in a pairwise fashion, independent of other parts of the system and with no central control. There are three aspects to the contribution of this paper. First, shock propagation in a network is developed purely from fundamental principles of complex systems. Second, systemic risk is shown to arise naturally in such a complex system. If a shock is delivered either to one agent or to many agents simultaneously, that shock may be transmitted further, thereby resulting in systemic risk. Third, the monetary loss to the entire system as a result of systemic shock is quantified. Simulations are used to study two particular characteristics of the interactions. The first is the resistance or susceptibility of individual agents to a shock. The second is the time it takes for the shock to affect the entire system. The results show that if a shock is applied to all agents in a network, the systemic effect of that shock is transmitted very quickly. Applying a shock to very few agents results only in an idiosyncratic effect. If an agent can transmit the shock further, a systemic effect will result. The recovery period for agents affected by a systemic shock can be orders of magnitude greater than the time taken for the shock to take effect. The overall effect of the shock on the system is quantified by formulating a 'contagion index', which measures the ratio of the total capital lost due to the systemic effect to the total capital before the shock was delivered. The result (approximately 7%) is consistent with other studies, but is more widely applicable because it is not based on one empirical data set.

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Section: Examples Of Shock Delivery: Financial Datamentioning

confidence: 99%

Systemic shock propagation in a complex system

Mitic

2019

Soft Comput

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“…They find that after the scandal announcement, there is an increase in the integration of equity and CDS prices for automakers. Bachmann et al (2017) study the reputational impact of the VW scandal on the US sales of BMW, Mercedes‐Benz, and Smart. They estimate that in the year after the scandal, the sales of these three brands dropped by about 105,000 vehicles.…”

Section: Literature Reviewmentioning

confidence: 99%

Shareholder Value Effects of the Volkswagen Emissions Scandal on the Automotive Ecosystem

Jacobs

Singhal

2020

Production and Operations Management

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T his study provides empirical evidence on the effect of the September 2015 Volkswagen diesel emissions scandal on the stock prices of publicly traded firms in the global automotive ecosystem. We focus on both the supply chain partners of VW-tier-1 suppliers; tier-2 suppliers; and business customers-and three groups of firms that are not VW supply chain partners-other motor vehicle manufacturers; parts manufacturers not identified as VW suppliers; and wholesalers, retailers, and rental agencies not identified as VW customers. We find that tier-1 suppliers of direct material to VW suffered a mean stock price reaction of-2.69% in the week following the scandal, but this effect varied by region. European suppliers were the most impacted with a mean stock price reaction of-5.52%. Suppliers with larger revenue dependence on VW experienced greater negative stock price reactions, as did suppliers of components for engines and/or emissions systems. Non-VW parts manufacturers experienced a positive effect. We find a mean stock price reaction of-5.28% to VW's European customers, but no significant effects for non-VW customers. European motor vehicle manufacturers experienced a mean stock price reaction of-7.60%. Our results suggest that firms should not just focus on selecting and monitoring responsible suppliers but also apply some of the same principles to developing responsible customers. Our work also has implications for industry groups, regulators, and legal systems, entities that have the resources and capabilities to effectively monitor large firms to reduce illegal or irresponsible behavior such as the VW scandal.

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“…Despite earlier works on the theory of collective reputation (Tirole, 1996;Winfree and McCluskey, 2005;Fleckinger, 2007;Levin, 2009;Fishman, Simhon, Finkelshtain, and Yacouel, 2010), empirical studies remain scarce (Freedman, Kearney, and Lederman, 2012;Bai et al, 2016;Zhao, 2018;Bachmann, Ehrlich, Fan, and Ruzic, 2019). Exploiting a natural experiment, our results explicitly identify this important source of externality, and illustrate how it is mediated by various informational and market forces.…”

Section: Introductionmentioning

confidence: 51%

Collective Reputation in Trade: Evidence from the Chinese Dairy Industry

Bai¹,

Gazzè²,

Wang³

2019

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Collective reputation implies an important externality. Among firms trading internationally, quality shocks about one firm's products could affect the demand of other firms from the same origin country. We study this issue in the context of a large-scale scandal that affected the Chinese dairy industry in 2008. Leveraging rich firm-product level administrative data and official quality inspection reports, we find that the export revenue of contaminated firms dropped by 84% after the scandal, relative to the national industrial trend, and the spillover effect on noncontaminated firms is measured at 64% of the direct effect. Notably, firms deemed innocent by government inspections did not fare any better than noninspected firms. These findings highlight the importance of collective reputation in international trade and the challenges governments might face in signaling quality and restoring trust. Finally, we investigate potential mechanisms that could mediate the strength of the reputation spillover. We find that the spillover effects are smaller in destinations where people have better information about parties involved in the scandal. New firms are more vulnerable to the collective reputation damage than established firms. Supply chain structure matters especially in settings where firms are less vertically integrated and exhibit fragmented upstream-downstream relationships.

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

Cited by 25 publications

References 46 publications

Systemic shock propagation in a complex system

Systemic shock propagation in a complex system

Shareholder Value Effects of the Volkswagen Emissions Scandal on the Automotive Ecosystem

Collective Reputation in Trade: Evidence from the Chinese Dairy Industry

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