Working Paper: NBER ID: w28479
Authors: Paolina C. Medina; Vrinda Mittal; Michaela Pagel
Abstract: In this study, we quantify the effects of receiving stocks from certain brands on spending in the brand's stores. We use data from a new FinTech company called Bumped that opens brokerage accounts for its users and rewards them with stocks when they shop at previously elected stores. For identification, we use 1) the staggered distribution of brokerage accounts over time after individuals sign up for a waitlist and 2) randomly distributed stock grants. We find that individuals spend 40% more per week at elected brands and stores after being allocated an account. In response to receiving a stock grant, individuals increase their weekly spending by 100% on the granted brands. Beyond documenting a causal link between stock ownership and individual spending, we show that weekly spending in certain brands of our users is strongly correlated with stock holdings of that brand by Robinhood brokerage clients. Finally, we present survey evidence to argue that loyalty is the dominant psychological mechanism explaining our findings. We thus provide micro evidence for the idea that stock ownership drives brand loyalty, which is an intangible asset that leads to lower firm cash flow volatility.
Keywords: Stock Ownership; Consumer Spending; Brand Loyalty; Fintech
JEL Codes: G02; G4; G41; G5; G51
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| stock ownership (G32) | loyalty as a psychological mechanism driving spending changes (D91) |
| receiving stocks from selected brands (L67) | 40% increase in weekly spending at those brands after account allocation (D12) |
| random stock grants (G34) | 100% increase in spending on granted brands (H61) |
| 1% increase in stock holdings (G11) | 0.12% increase in spending at the respective brand's stores (D12) |
| stock rewards (G12) | larger effect on spending than traditional cash-back incentives (E62) |