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

Abstract

This paper uses the 2015 Volkswagen (VW) emissions scandal as a natural experiment to provide evidence that collective reputation externalities are economically significant.Using a combination of difference-in-differences and demand estimation approaches, we document a spillover effect from the scandal to the non-VW German auto manufacturers.The spillover amounts to an average drop of $2,057 in consumer valuations of these manufacturers' vehicles and to a 34.6% reduction in their annual sales.We substantiate our interpretation that the estimates reflect a reputation spillover using data on internet search behavior and direct measures of consumer sentiment from Twitter.

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