This article has been reviewed according to Science X's editorial process and policies. Editors have highlighted the following attributes while ensuring the content's credibility: The capital of any business comes in (at least) two categories. There's the kind that has a price—land, cash holdings, etc.—and a less tangible, priceless kind.
Reputational capital falls squarely into the latter category. Try as they might, companies cannot buy positive public opinion, even with the largest marketing budgets. But that doesn't prevent some from engaging in dark marketing tactics, such as planting or buying fake "customer reviews" on influential platforms like Yelp and Amazon.
Crossing that line can backfire if the company is caught. When its ethical lapses are brought to light, the company undergoes reputational damage, essentially auto-cannibalizing some of its intangible capital. And that bite stings more, and for longer, than you might think, suggests a recently published working paper from Yi Cao, assistant professor of accounting at Costello College of Business at George Mason University.
The research plumbs the financial consequences of flagged false reviews on crowdsourcing platform Yelp, a key reputational broker for local businesses throughout the United States. The paper was co-authored by Sean Wang (formerly of Southern Methodist University), John Bai of Hong Kong Polytechnic University and Chi Wan of San Diego State University. To punish businesses that it deems guilty of gaming the customer-review system, Yelp places a prominent "Consumer Alert" banner on all their associated listing pages.
These are typically 90-day penalties. (As of 2023, more than 4,900 businesses had been disciplined on Yelp in this way.) "We don't know every signal Yelp uses to identify fake or paid-for reviews, but from what we know, Yelp relies substantially on reports from consumers and business owners," says Cao. "There are also reports that it has an algorithm running in the background to screen reviews for AI-generated language—which is a sign of possible review inflation." The researchers accessed Yelp data for the years 2019 to 2024—288,426 firm-month observations in all, including 16,837 observations of flagged firms and their demand-side peers during the six months surrounding an alert. They analyzed this data set alongside monthly foot-traffic reports for the observed businesses from global location data firm SafeGraph.
For some of the businesses, they were also able to obtain credit card transaction data through Consumer Edge, a customer intelligence company. Cross-referencing these three data sources, the researchers traced the rise and fall of businesses fingered for false reviews. The general demand premium for businesses with a high proportion of four- and five-star reviews equates to about 2.9% more foot traffic than lower-reputation rivals in their local area.
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