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Income Fluctuations and Firm Choice

Published online by Cambridge University Press:  06 July 2020

Scott R. Baker*
Northwestern University
Brian Baugh
University of
Lorenz Kueng
Università della Svizzera Italiana, Swiss Finance Institute, Northwestern University lorenz.kueng@usi
s-baker@kellogg.northwestern (corresponding author)


How households shift spending across firms in response to income fluctuations is an important source of firm risk. Using transaction-level data, we study how households interact with the universe of retailers following income changes. We find that income increases within and across households result in substitution toward retailers in a category that are higher quality; smaller; more profitable; and have higher labor intensity, research and development (R&D) intensity, and equity betas. Although not all shifts are economically large, they do not average out across retailers. Thus, retailer choice has implications for key financial and macroeconomic outcomes, such as aggregate profitability and labor demand.

Research Article
© The Author(s), 2020. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington

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We are very grateful to Jarrad Harford (the editor) for guidance and detailed comments and an anonymous referee for useful suggestions. We would like to thank seminar participants at Northwestern, the Hoover Institution, the International Institute of Public Finance (IIPF), Universidad Catolica de Chile, and the Copenhagen Workshop on New Consumption Data for helpful feedback.


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