Do Online Reviews Matter? - an Empirical Investigation of Panel Data

TLDR

In contrast to earlier studies that treat online user reviews as exogenous, this work considers them both influencing and being influenced by movie sales. The study examines the persuasive effect and awareness effect of online user reviews on movies' daily box office performance. The consideration of the endogenous nature of online user reviews significantly changes the analysis. Our results show that, after accounting for endogeneity, the rating of online user reviews has no significant impact on box office revenues, yet the volume of reviews significantly influences sales, suggesting an awareness effect driven by underlying word‑of‑mouth intensity.

Abstract

This study examines the persuasive effect and awareness effect of online user reviews on movies' daily box office performance. In contrast to earlier studies that take online user reviews as an exogenous factor, we consider reviews both influencing and influenced by movie sales. The consideration of the endogenous nature of online user reviews significantly changes the analysis. Our result shows that the rating of online user reviews has no significant impact on movies' box office revenues after accounting for the endogeneity, indicating that online user reviews have little persuasive effect on consumer purchase decisions. Nevertheless, we find that box office sales are significantly influenced by the volume of online posting, suggesting the importance of awareness effect. The finding of awareness effect for online user reviews is surprising as online reviews under the analysis are posted to the same website and are not expected to increase product awareness. We attribute the effect to online user reviews as an indicator of the intensity of underlying word-of-mouth that plays a dominant role in driving box office revenues.