The Financial Consequences of Online Review Aggregators: Evidence from Yelp Ratings and SBA Loans

66 Pages Posted: 6 Nov 2017 Last revised: 24 Jan 2022

See all articles by Ruidi Huang

Ruidi Huang

Southern Methodist University (SMU) - Finance Department

Date Written: December 15, 2021

Abstract

This paper demonstrates the financial and real consequences of online review aggregators using a novel and comprehensive Yelp dataset. Exploiting a regression discontinuity design that overcomes the potentially endogenous relationship between Yelp reviews and loan outcomes, I show that coarse Yelp ratings are significant indicators of the outcomes. More specifically, a one-half star increase in Yelp ratings leads to better loan terms and subsequently better loan performance. The results are more pronounced when banks have less information about the borrowers. Yelp ratings become less effective when an existing lending relationship is present. Higher Yelp ratings also lead to increases in consumer demand and the likelihood of subsequent business opening. Overall, the paper provides evidence that online review aggregators are influential recommendation agents who influence both customers' choice of consumption and banks' financing decisions.

Keywords: Social Media, Online Review, Credit Rating, Small Business Loan, Bank Lending

JEL Classification: G21, G30, H81, L15

Suggested Citation

Huang, Ruidi, The Financial Consequences of Online Review Aggregators: Evidence from Yelp Ratings and SBA Loans (December 15, 2021). Available at SSRN: https://ssrn.com/abstract=3064343 or http://dx.doi.org/10.2139/ssrn.3064343

Ruidi Huang (Contact Author)

Southern Methodist University (SMU) - Finance Department ( email )

United States

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