Online Reputation and Debt Capacity
69 Pages Posted: 9 Mar 2020 Last revised: 26 Oct 2022
Date Written: February 14, 2020
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
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