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When Do Third-Party Product Reviews Affect Firm Value and What Can Firms Do? The Case of Media Critics and Professional Movie Reviews
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When Do Third-Party Product Reviews Affect Firm Value and What Can Firms Do? The Case of Media Critics and Professional Movie Reviews
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Journal Article
When Do Third-Party Product Reviews Affect Firm Value and What Can Firms Do? The Case of Media Critics and Professional Movie Reviews
2012
Overview
Third-party product reviews (TPRs) have become ubiquitous in many industries. Aided by communication technologies, particularly on the Internet, TPRs are widely available to consumers, managers, and investors. The authors examine whether and how TPRs of new products influence the financial value of firms introducing the products. An event study covering 14 major media and professional reviews of movies released by 21 studios shows that TPRs exert significant impact on stock returns in the direction of their valence. However, the impact comes from the valence of a review that is measured relative to other, previously published reviews and not from the absolute valence of the review itself. The authors further study the dynamics of TPR impact on firm value and find that the impact exists only for prerelease reviews and is the strongest on the product release date, though it disappears when sales information becomes available after product release. These results demonstrate that TPRs play significant roles as the investors update their expectation about new product sales potential. The authors also find that advertising spending increases the positive impact of TPRs on firm value and buffer the negative impact. Therefore, firms could strategically use marketing instruments such as advertising to moderate the impact of TPRs.
