1. Online Reputation and Debt Capacity
- Author
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Arthur Petit-Romec, Jean-Philippe Weisskopf, Alexandre Garel, François Derrien, Rotman School of Management, University of Toronto, University of Toronto, Audencia Business School, Université Paris 1 Panthéon-Sorbonne - UFR d'Économie (UP1 UFR02), Université Paris 1 Panthéon-Sorbonne (UP1), and HEC Paris Research Paper Series
- Subjects
Economics and Econometrics ,media_common.quotation_subject ,education ,Monetary economics ,online reputation ,Affect (psychology) ,Information asymmetry ,Accounting ,Debt ,0502 economics and business ,customer ratings ,050207 economics ,health care economics and organizations ,media_common ,050208 finance ,corporate debt ,05 social sciences ,corporate investment ,JEL: L - Industrial Organization/L.L1 - Market Structure, Firm Strategy, and Market Performance/L.L1.L15 - Information and Product Quality • Standardization and Compatibility ,JEL: G - Financial Economics/G.G3 - Corporate Finance and Governance/G.G3.G32 - Financing Policy • Financial Risk and Risk Management • Capital and Ownership Structure • Value of Firms • Goodwill ,humanities ,JEL: G - Financial Economics/G.G1 - General Financial Markets/G.G1.G14 - Information and Market Efficiency • Event Studies • Insider Trading ,Demand shock ,Regression discontinuity design ,[SHS.GESTION]Humanities and Social Sciences/Business administration ,Cash flow ,JEL: L - Industrial Organization/L.L8 - Industry Studies: Services/L.L8.L83 - Sports • Gambling • Restaurants • Recreation • Tourism ,Psychological resilience ,Business ,Finance ,Reputation - Abstract
This paper explores the effects of online customer ratings on debt capacity. 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 variation in customer ratings resulting from the rounding of scores in regression discontinuity tests to establish causality. Customer ratings affect financial policy through a reduction in cash flow risk and higher resilience to demand shocks. Restaurants with good ratings use their extra debt capacity to invest in tangible assets. Finally, favorable online ratings relax credit constraints mostly for moderately constrained restaurants.
- Published
- 2020