آیا شرکت های هواپیمایی ورشکسته از دوستانه ترین شرکت ها هستند؟
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Publisher : Elsevier - Science Direct (الزویر - ساینس دایرکت)
Journal : Journal of Corporate Finance, Volume 18, Issue 5, December 2012, Pages 1217–1231
We use data from the US airline industry to investigate whether firms that are under bankruptcy protection, as well as these firm's product market rivals, change the quality of the products they offer. We measure the quality of the services offered by a carrier using flight cancelations and delays, and the age of the aircraft used by the carrier. We find that delays and cancelations are less frequent during bankruptcy filings but return to their pre-bankruptcy levels once the bankrupt firm emerges from bankruptcy. We also find that firms use Chapter 11 filings to permanently reduce the age of their fleet. We do not find evidence of statistically and economically significant changes by the airline's competitors along any of the dimensions above.
Partly fueled by the deteriorating credit conditions resulting from the financial turmoil that began in 2007, corporate bankruptcies in the last few years have soared. The Administrative Office of the U.S. Courts reports 12, 863 Chapter 11 filings for the year ending June 30, 2009, up about 94% from the previous year when 6513 business filed for bankruptcy protection.2 Attention has traditionally centered on the direct costs of bankruptcy proceedings, such as legal and administrative expenses, as well as their indirect costs, such as lost sales.3 Much of the current discussion involves the effect of bankruptcy on the firm's employees who might be laid off, on the firm's suppliers who might face reduced demand, and on consumers of the bankrupt firm who face a lower quality product or a reduction in the variety of the products offered by the bankrupt firm. Still, there is no systematic evidence showing whether or not product market quality changes during and after bankruptcy. 4 We use data from the US airline industry to investigate the effect of Chapter 11 filings on the quality of the products that firms offer during a bankruptcy filing and after the firm emerges from bankruptcy protection. Using a single industry allows us to examine how bankruptcy filings affect the quality of the products while abstracting from potentially confounding unobserved differences across different industries. Thus, our analysis is in the same spirit as Chevalier, 1995a and Chevalier, 1995b, who studies the relationship between leverage buyouts and the pricing behavior of firms and their rivals using cross-section data from the US supermarket industry. Several features of the airline industry make it particularly appealing to address the question of this paper. First, and foremost, there are clear and objective ways to define measures of product quality: flight cancelations, flight delays, and aircraft age, as well as oversold seats, and lost and mishandled baggage.5 Second, there have been several bankruptcy filings in the industry over the last ten years by firms that interact with different carriers in distinct markets, and over different years. This allows us to identify the effects of bankruptcy on product quality, independent of potentially confounding market, firm, and time effects. Finally, the airline industry is an oligopoly, and hence we should expect competitors to react strategically to the choices made by bankrupt firms in the markets where these firms interact. Competitors might attempt to displace the bankrupt firm and capture the distressed firm's market share by improving product quality. However, non-bankrupt firms do not enjoy the concessions that bankruptcy grants the insolvent firm, for example, in terms of lease and labor contract renegotiations and rejections. Thus, these firms are limited in the way in which they can reorganize their business plan to respond to changes adopted by the bankrupt firm. A non trivial part of restructuring is changing the real day-to-day operations. This in turn, has implications for the product market where the firm works. Product market effects include two distinct but related issues. First, does the bankrupt firm alter the quality of the products it offers during and after emerging from bankruptcy? Product quality is an implicit contract between customers and the firm (Maksimovic and Titman 1991), and it is one susceptible to unilateral change by the insolvent firm, as it might lower the quality to reduce costs and hence increase revenue. A second related question is whether the distressed firm will change the quantity and variety of products offered: Which operations and products will the firm continue to offer and which ones will it shed? Consistent with this quantity choice, at what price will the firm sell these products? In bankruptcy the insolvent firm can reject leases and labor contracts, granting the firm a larger leeway to modify its price and quantity business strategy, by shedding products and reducing services. This is the price and quantity question. In this paper, we concentrate exclusively on the first question: The effects of bankruptcy on product market quality, as captured by flight cancelations, arrival delays, and age of aircrafts. We further discuss and present some evidence using baggage lost and oversold seats in a flight. Ours is the first paper to address the product-market quality implications of bankruptcy. In a companion paper, we focus exclusively on the second question and study the effects of bankruptcy filings on airline network structure, capacity choices, and ticket prices, and report that bankrupt airlines downsize their national route structure as well as their airport-specific networks; and that bankrupt airlines reduce their route-specific flight frequency and capacity. Consistently, prices are not significantly lower after bankruptcy. When dealing with quality changes, in particular arrival delays and flight cancelations, we control for the number of departed flights within markets and time period, since, as our companion paper shows, capacity shrinks during bankruptcy and this could impact delays and cancelations. We acknowledge that changes in product market competition (both price-quantity and quality) might pre-date the actual filing, creating a potential endogeneity concern. As will be made clear in the econometric section, we deal with this following Ashenfelter (1978). We find that an insolvent firm decreases the percent of canceled flights by 8% while it operates under protection, and increases it by 3% after emerging from bankruptcy, both numbers relative to pre-bankruptcy levels. The percentage of flights with at least a 15 min delay upon arrival drops by 9% while the carrier operates under bankruptcy protection, but returns to the pre-bankruptcy levels once the carrier emerges from bankruptcy. The age of the fleet (in years since delivery of the make/model), flown by the insolvent firm, drops 9% while the carrier operates under protection, and remains lower after the carrier emerges from protection. Overall, these results show that a firm operating in bankruptcy might be able to improve the quality of its services only temporarily and while the firm operates under bankruptcy. Once the firm emerges, the quality of daily operations returns to their pre-bankruptcy levels. The only change that appears permanent concerns the one stemming from an investment in fixed assets, the renovation of the fleet. Our results are related to those in a companion paper (Ciliberto and Schenone, 2012). There we use a similar econometric methodology to the one employed in this paper, but we address a different question, we employ a different dataset, and shed light into a to study the effects of bankruptcy filings on airline network structure, capacity choices, and ticket prices. We find that bankrupt airlines downsize their national route structure as well as their airport-specific networks; and that bankrupt airlines reduce their route-specific flight frequency and capacity. We also find, somewhat surprisingly, that prices are higher after bankruptcy. The analysis in this paper differs from the one in Ciliberto and Schenone (2012) because here we focus on the extent to which bankruptcy filings are associated with changes in the vertical differentiation of the airline services among firms rather than with changes in capacity and price choices. Such a clear distinction between price and quality competition is common in corporate finance and industrial organization because modeling simultaneously price and quality competition is theoretically very complex. 6 There is an additional, practical, reason why we focus on quality competition in this paper: It is extremely rare to be able to observe measures of quality, which instead we do in the airline industry. This combination of factors explains why our analysis is the first one in the literature that investigates the effect of bankruptcy filings on product quality. The rest of the paper proceeds as follows. Section 2 gives an overview on the literature on financial distress and bankruptcy and product market competition. In Section 3 we describe specific features of the U.S. bankruptcy code that have the potential to affect product quality, and we specifically mention two sections of the Code that pertain to the airline industry. Section 4 describes the data, how we measure different dimensions of product quality, and defines the key variables in the analysis. Section 5 presents the empirical specification and Section 6 discusses the results. Section 8 concludes.
نتیجه گیری انگلیسی
With the tightening of available credit following the Panic of 2007, several industries have faced cash constraints that pushed firms into insolvency. This reignited the debate on the effect that bankruptcy has on different economic agents, one of them being the firm's consumers. What effect would a firm's bankruptcy have on the quality of the products that the bankrupt firm offers? In this paper we use objective ways to define measures of product quality for airline service: flight cancelations, flight delays, and aircraft age. We find that delays and cancelations are less frequent during bankruptcy filings but return to their pre-bankruptcy levels once the bankrupt firm emerges from Chapter 11. We also find that firms use Chapter 11 filings to permanently reduce the average age of their fleet. We do not find evidence of statistically and economically significant changes by the airline's competitors along any of the dimensions above. There are other measures of product quality, such as mishandled bags, oversold seats, customer complaints, and accident and incident rates, but these are either not market specific, or there are too few observations to make significant statistical (and economic) inferences. Our work sheds light on the effect of bankruptcy filings in other industries. For example, General Motors (GM) recently filed for Chapter 11 bankruptcy. Under bankruptcy, GM shed brands such as Pontiac, Saab, and Saturn. Hence, consumers now have fewer choices. Yet, it might be that GM will increase the quality of the brands it still produces (e.g., more reliable and comfortable). Another example: Kmart's Chapter 11 bankruptcy (January 22,2002). While restructuring, Kmart closed more than 300 stores in the U.S. and laid off about 34,000 workers. At the same time it introduced five prototype stores. These stores were advertised as having wider aisles, improved selection, and better lighting. Kmart moved towards fewer stores but better quality ones. Our analysis shows that customers should be cautious about any effective improvement of product quality: neither GM nor Kmart are likely to improve the quality of the products that they continue to produce. However, because of the downsizing associated with the bankruptcy filing, GM and Kmart might shed their worse quality products. This paper also complements the work of Ciliberto and Schenone (2012) who show a reduction in the variety of products the bankrupt firm offers while in bankruptcy and after emerging from bankruptcy. Customers have less options to choose from and hence the distance from their preferred choice and the actual available options might increase. This shift in business strategy is detrimental to consumers. Here we show a further dimension along which customers are not better off during or after a bankruptcy filing: for the products that the firm continues to offer, quality does not improve, but rather worsens or remains at pre-bankruptcy levels. The only significant improvement we document is the one stemming from changes that relate to investments in durable fixed assets.