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1. Online Reputation and Debt Capacity

Author

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

2. The Effect of Hold-up Problems on Corporate Investment: Evidence from Import Tariff Reductions

Author

Thorsten Martin, Clemens A. Otto, Groupement de Recherche et d'Etudes en Gestion à HEC (GREGH), Ecole des Hautes Etudes Commerciales (HEC Paris)-Centre National de la Recherche Scientifique (CNRS), HEC Research Paper Series, and Haldemann, Antoine

Subjects
Hold-up Problems, History, Corporate Investment, Polymers and Plastics, JEL: F - International Economics/F.F1 - Trade/F.F1.F14 - Empirical Studies of Trade, Supply chain, JEL: L - Industrial Organization/L.L1 - Market Structure, Firm Strategy, and Market Performance/L.L1.L14 - Transactional Relationships • Contracts and Reputation • Networks, Instrumental variable, Foreign technology, Tariff, ComputerApplications_COMPUTERSINOTHERSYSTEMS, International economics, JEL: D - Microeconomics/D.D2 - Production and Organizations/D.D2.D23 - Organizational Behavior • Transaction Costs • Property Rights, JEL: G - Financial Economics/G.G3 - Corporate Finance and Governance/G.G3.G31 - Capital Budgeting • Fixed Investment and Inventory Studies • Capacity, Industrial and Manufacturing Engineering, Supply Chains, Investment decisions, Multinational corporation, Homogeneous, Economics, [SHS.GESTION]Humanities and Social Sciences/Business administration, Manufacturing firms, Business and International Management, [SHS.GESTION] Humanities and Social Sciences/Business administration, Import Tariffs
Abstract

We study how upstream tariffs affect downstream investment in US manufacturing firms. Exploiting tariff reductions following multinational trade agreements, we estimate that a 10% decrease of upstream tariffs entails an increase in downstream investment by 4% to 6%. This effect stems from tariff reductions for homogeneous and low-R&D inputs (e.g., cement), consistent with the investment response being due to cost reductions rather than superior foreign technology embodied in imported inputs. Extending the analysis beyond tariffs, we use the sudden increase in Chinese import penetration in an instrumental variable estimation and show that higher import competition leads to higher downstream investment.

Published
2017