Online Reputation and Debt Capacity

69 Pages Posted: 9 Mar 2020 Last revised: 4 Mar 2021

See all articles by François Derrien

François Derrien

HEC Paris - Finance Department

Alexandre Garel

Audencia Business School

Arthur Petit-Romec

Toulouse Business School

Jean-Philippe Weisskopf

Ecole hôtelière de Lausanne

Date Written: February 14, 2020

Abstract

This paper explores the effects of online customer ratings on financial policy. Using a large sample of Parisian restaurants, we find a positive and economically significant relation between customer ratings and bank debt. We use the locally exogenous variations in customer ratings resulting from the rounding of scores in regression discontinuity tests to establish causality. Customer ratings have more impact on debt when information asymmetry is higher. They affect financial policy through a reduction in cash flow risk and greater resilience to demand shocks. Restaurants with good ratings use their extra debt to invest in tangible assets.

Keywords: online reputation, customer ratings, corporate debt, corporate investment

JEL Classification: G14, G32, L15, L83

Suggested Citation

Derrien, François and Garel, Alexandre and Petit-Romec, Arthur and Weisskopf, Jean-Philippe, Online Reputation and Debt Capacity (February 14, 2020). HEC Paris Research Paper No. FIN-2020-1367, Available at SSRN: https://ssrn.com/abstract=3538313 or http://dx.doi.org/10.2139/ssrn.3538313

François Derrien (Contact Author)

HEC Paris - Finance Department ( email )

1 rue de la Liberation
Jouy-en-Josas Cedex, 78351
France
33 1 39 67 72 98 (Phone)

HOME PAGE: http://www.hec.fr/derrien

Alexandre Garel

Audencia Business School ( email )

8 Road Joneliere
BP 31222
Nantes Cedex 3, 44312
France

Arthur Petit-Romec

Toulouse Business School ( email )

20, bd Lascrosses
Toulouse, 31068
France

Jean-Philippe Weisskopf

Ecole hôtelière de Lausanne ( email )

Route de Cojonnex 18
Lausanne, 1000
Switzerland

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