Hostname: page-component-586b7cd67f-t7czq Total loading time: 0 Render date: 2024-11-22T06:00:12.476Z Has data issue: false hasContentIssue false
  • English
  • Français

Online Reputation and Debt Capacity

Published online by Cambridge University Press:  14 March 2023

François Derrien ,
Alexandre Garel ,
Arthur Romec  and
Jean-Philippe Weisskopf
François Derrien*
Affiliation:
HEC Paris
Alexandre Garel
Affiliation:
Audencia Business School [email protected]
Arthur Romec
Affiliation:
TBS Business School [email protected]
Jean-Philippe Weisskopf
Affiliation:
EHL Hospitality Business School // HES-SO Haute École Spécialisée de Suisse Occidentale [email protected]
*
[email protected] (corresponding author)
Rights & Permissions [Opens in a new window]

Abstract

Core share and HTML view are not available for this content. However, as you have access to this content, a full PDF is available via the ‘Save PDF’ action button.

We explore the effects of online customer ratings on financial policy. Using a large sample of Parisian restaurants, we find a positive and economically significant relationship between customer ratings and restaurant debt. We use the locally exogenous variations in customer ratings resulting from the rounding of scores in regression discontinuity tests to establish causality. Favorable online ratings reduce cash flow risk and increase resilience to demand shocks. Consistent with the view that good online ratings increase the debt capacity of restaurants and their growth opportunities, restaurants with good ratings use their extra debt to invest in tangible assets.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 59 , Issue 3 , May 2024 , pp. 1100 - 1140
Copyright
© The Author(s), 2023. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington

Footnotes

We thank Jarrad Harford (the editor) and an anonymous referee for their valuable comments and inputs. We are grateful to Alberta Di Giuli, Denis Gromb, Thorsten Martin, José Martin-Flores, Clemens Otto, Christophe Spaenjers, Alexander Wagner, Michael Wittry, and seminar participants at CUNEF, Toulouse Business School, Neoma Business School, the Bank of France, IIMA, the 2021 Inter-Business-School Finance Seminar, and the 2021 Corporate Finance Webinar for helpful comments and suggestions. Derrien acknowledges financial support from the Investissements d’Avenir Labex (ANR-11-IDEX-0003/Labex Ecodec/ANR-11-LABX-0047).

References

Anderson, M., and Magruder, J.. “Learning from the Crowd: Regression Discontinuity Estimates of the Effects of an Online Review Database.” Economic Journal, 122 (2012), 957–989.CrossRefGoogle Scholar
Bae, K.-H.; Kang, J.-K.; and Wang, J.. “Employee Treatment and Firm Leverage: A Test of the Stakeholder Theory of Capital Structure.” Journal of Financial Economics, 100 (2011), 130–153.CrossRefGoogle Scholar
Calonico, S.; Cattaneo, M. D.; and Titiunik, R.. “Robust Nonparametric Confidence Intervals for Regression‐Discontinuity Designs.” Econometrica, 82 (2014), 2295–2326.CrossRefGoogle Scholar
Campello, M.; Gao, J.; Qiu, J.; and Zhang, Y.. “Bankruptcy and the Cost of Organized Labor: Evidence from Union Elections.” Review of Financial Studies, 31 (2018), 980–1013.CrossRefGoogle Scholar
Campello, M., and Giambona, E.. “Real Assets and Capital Structure.” Journal of Financial and Quantitative Analysis, 48 (2013), 1333–1370.CrossRefGoogle Scholar
Chemmanur, T. J.; Cheng, Y.; and Zhang, T.. “Human Capital, Capital Structure, and Employee Pay: An Empirical Analysis.” Journal of Financial Economics, 110 (2013), 478–502.CrossRefGoogle Scholar
Chen, H.; De, P.; Hu, Y. J.; and Hwang, B.-H.. “Wisdom of Crowds: The Value of Stock Opinions Transmitted through Social Media.” Review of Financial Studies, 27 (2014), 1367–1403.CrossRefGoogle Scholar
Choi, H. S., and Leon, S.. “An Empirical Investigation of Online Review Helpfulness: A Big Data Perspective.” Decision Support Systems, 139 (2020), 113403.CrossRefGoogle Scholar
Derrien, F.; Mésonnier, J.-S.; and Vuillemey, G.. “Set-up Costs and the Financing of Young Firms.” Banque de France Working Paper No. 792 (2020).CrossRefGoogle Scholar
Diamond, D. W. “Debt Maturity Structure and Liquidity Risk.” Quarterly Journal of Economics, 106 (1991), 709–737.CrossRefGoogle Scholar
Dinlersoz, E.; Kalemli-Özcan, S.; Hyatt, H.; and Penciakova, V.. “Leverage over the Firm Life Cycle, Firm Growth, and Aggregate Fluctuations.” FRB Atlanta Working Paper No. 2019-18 (2019).CrossRefGoogle Scholar
Edmans, A. “Does the Stock Market Fully Value Intangibles? Employee Satisfaction and Equity Prices.” Journal of Financial Economics, 101 (2011), 621–640.CrossRefGoogle Scholar
Fisman, R.; Paravisini, D.; and Vig, V.. “Cultural Proximity and Loan Outcomes.” American Economic Review, 107 (2017), 457–492.CrossRefGoogle Scholar
Frank, M. Z., and Goyal, V. K.. “Capital Structure Decisions: Which Factors Are Reliably Important?” Financial Management, 38 (2009), 1–37.CrossRefGoogle Scholar
Gelman, A., and Imbens, G.. “Why High-Order Polynomials Should Not Be Used in Regression Discontinuity Designs.” Journal of Business & Economic Statistics, 37 (2019), 447–456.CrossRefGoogle Scholar
Giroud, X.; Mueller, H. M.; Stomper, A.; and Westerkamp, A.. “Snow and Leverage.” Review of Financial Studies, 25 (2012), 680–710.CrossRefGoogle Scholar
Glaeser, E. L.; Kim, H.; and Luca, M.. “Nowcasting the Local Economy: Using Yelp Data to Measure Economic Activity.” NBER Working Paper No. 24010 (2017).CrossRefGoogle Scholar
Green, T. C.; Huang, R.; Wen, Q.; and Zhou, D.. “Crowdsourced Employer Reviews and Stock Returns.” Journal of Financial Economics, 134 (2019), 236–251.CrossRefGoogle Scholar
Hartzmark, S. M., and Sussman, A. B.. “Do Investors Value Sustainability? A Natural Experiment Examining Ranking and Fund Flows.” Journal of Finance, 74 (2019), 2789–2837.CrossRefGoogle Scholar
Horsch, P.; Longoni, P.; and Oesch, D.. “Intangible Capital and Leverage.” Journal of Financial and Quantitative Analysis, 56 (2021), 475–498.CrossRefGoogle Scholar
Huang, J. “The Customer Knows Best: The Investment Value of Consumer Opinions.” Journal of Financial Economics, 128 (2018), 164–182.CrossRefGoogle Scholar
Huang, R. “The Financial Consequences of Customer Satisfaction: Evidence from Yelp Ratings and Sba Loans.” Working Paper, Villanova University (2020).CrossRefGoogle Scholar
Larkin, Y. “Brand Perception, Cash Flow Stability, and Financial Policy.” Journal of Financial Economics, 110 (2013), 232–253.CrossRefGoogle Scholar
Lee, D. S. “Randomized Experiments from Non-Random Selection in U.S. House Elections.” Journal of Econometrics, 142 (2008), 675–697.CrossRefGoogle Scholar
Lee, D. S., and Lemieux, T.. “Regression Discontinuity Designs in Economics.” Journal of Economic Literature, 48 (2010), 281–355.CrossRefGoogle Scholar
Leitch, S. Web Site Analytics: The Potential for Transformation of a Restaurant’s Marketing Strategy-A Case Study of a Casual Dining Restaurant in the Midwest. West Lafayette, IN: Purdue University (2018).Google Scholar
Lemmon, M. L.; Roberts, M. R.; and Zender, J. F.. “Back to the Beginning: Persistence and the Cross‐Section of Corporate Capital Structure.” Journal of Finance, 63 (2008), 1575–1608.CrossRefGoogle Scholar
Lemmon, M. L., and Zender, J. F.. “Debt Capacity and Tests of Capital Structure Theories.” Journal of Financial and Quantitative Analysis, 45 (2010), 1161–1187.CrossRefGoogle Scholar
Lim, S. C.; Macias, A. J.; and Moeller, T.. “Intangible Assets and Capital Structure.” Journal of Banking & Finance, 118 (2020), 105873.CrossRefGoogle Scholar
Loumioti, M. “The Use of Intangible Assets as Loan Collateral.” Working Paper, University of Texas at Dallas (2012).CrossRefGoogle Scholar
Luca, M. “Reviews, Reputation, and Revenue: The Case of Yelp.Com.” Working Paper, Harvard Business School (2016).Google Scholar
Luca, M., and Zervas, G.. “Fake It Till You Make It: Reputation, Competition, and Yelp Review Fraud.” Management Science, 62 (2016), 3412–3427.CrossRefGoogle Scholar
Mann, W. “Creditor Rights and Innovation: Evidence from Patent Collateral.” Journal of Financial Economics, 130 (2018), 25–47.CrossRefGoogle Scholar
Mayzlin, D.; Dover, Y.; and Chevalier, J.. “Promotional Reviews: An Empirical Investigation of Online Review Manipulation.” American Economic Review, 104 (2014), 2421–2455.CrossRefGoogle Scholar
McCrary, J. “Manipulation of the Running Variable in the Regression Discontinuity Design: A Density Test.” Journal of Econometrics, 142 (2008), 698–714.CrossRefGoogle Scholar
Mun, S. G., and Jang, S. S.. “Working Capital, Cash Holding, and Profitability of Restaurant Firms.” International Journal of Hospitality Management, 48 (2015), 1–11.CrossRefGoogle Scholar
Park, D.-H., and Lee, J.. “Ewom Overload and Its Effect on Consumer Behavioral Intention Depending on Consumer Involvement.” Electronic Commerce Research and Applications, 7 (2008), 386–398.CrossRefGoogle Scholar
Payne, J. W.; Bettman, J. R.; and Johnson, E. J.. “Behavioral Decision Research: A Constructive Processing Perspective.” Annual Review of Psychology, 43 (1992), 87–131.CrossRefGoogle Scholar
Petersen, M. A. “Estimating Standard Errors in Finance Panel Data Sets: Comparing Approaches.” Review of Financial Studies, 22 (2009), 435–480.CrossRefGoogle Scholar
Rajan, R. G., and Zingales, L.. “What Do We Know About Capital Structure? Some Evidence from International Data.” Journal of Finance, 50 (1995), 1421–1460.CrossRefGoogle Scholar
Robb, A. M., and Robinson, D. T.. “The Capital Structure Decisions of New Firms.” Review of Financial Studies, 27 (2014), 153–179.CrossRefGoogle Scholar
Roberts, M. R., and Whited, T. M.. “Endogeneity in Empirical Corporate Finance.” In Handbook of the Economics of Finance,, Vol. 2A, Constantinides, G. M., Harris, M., and Stulz, R. M., eds. Amsterdam: North Holland (2013), 493–572.CrossRefGoogle Scholar
Siering, M.; Muntermann, J.; and Rajagopalan, B.. “Explaining and Predicting Online Review Helpfulness: The Role of Content and Reviewer-Related Signals.” Decision Support Systems, 108 (2018), 1–12.CrossRefGoogle Scholar
Stiglitz, J., and Weiss, A.. “Credit Rationing in Markets with Imperfect Information.” American Economic Review, 71 (1981), 393–410.Google Scholar
Subrahmanyam, A., and Titman, S.. “The Going‐Public Decision and the Development of Financial Markets.” Journal of Finance, 54 (1999), 1045–1082.CrossRefGoogle Scholar
Titman, S., and Wessels, R.. “The Determinants of Capital Structure Choice.” Journal of Finance, 43 (1988), 1–19.CrossRefGoogle Scholar