The signaling and reputational effects of customer ratings on hotel revenues: Evidence from TripAdvisor

https://doi.org/10.1016/j.ijhm.2021.103065Get rights and content
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Highlights

  • Decompose signaling and reputational effects of customer ratings on hotel revenues.

  • Regression discontinuity separates signaling effect from reputational effect.

  • A 1-star increase leads up to 3.0% increase in hotel revenue as signaling effect.

  • A 1-star increase leads up to 2.3% increase in hotel revenue as reputational effect.

Abstract

This study aims to examine whether customer ratings and online reviews affect hotel revenues, and if so, to quantify the effects. To achieve this objective, we articulate the mechanisms grounded on reputation theories whereby customer ratings exercise the influence on hotel performance through reputational and signaling effects. Using customer rating data from TripAdvisor and hotel revenue data from Texas, we estimate fixed effects regressions and adopt a regression discontinuity design to separate the signaling effect of customer ratings from reputational effect. We found that the signaling effect of a 1-star increase is an increase of 2.2–3.0% in hotel monthly revenues whereas the reputational effect of a 1-star increase is an increase of around 1.5–2.3% in hotel monthly revenues. Our findings are robust across alternative model specifications and provide insightful implications for hotels to manage their customer ratings.

Keywords

Customer rating
Online review
Signaling effect
Reputational effect
TripAdvisor

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