Focus on Research

January 18, 2013 12:54 pm

Something for the weekend

“Superb hotel, one of the best I have ever stayed in.” Praise such as this is common on online hotel review sites, but how true is it? Was it written by a genuine customer or by one of the hotel’s staff?

Knowing whether or not the review is genuine is important because it can have a significant effect on a potential customer.

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Focus on Research

To answer this question Yaniv Dover, an assistant professor of business administration at Tuck School of Business at Dartmouth, with colleagues Dina Mayzlin, an associate professor at Marshall School of Business, USC and Judith Chevalier, a professor of finance and economics at Yale School of Management, compared two hotel review sites Expedia.com and TripAdvisor.com. Only those customers who have booked for at least one night’s stay at a hotel on Expedia are allowed to post a review, while anyone can write a critique on TripAdvisor.

The academics looked at 3,082 hotel reviews, 95 per cent of which had reviews on both sites. They divided these hotels into independent, franchised and company-owned of a chain, with the theory that independent hotels would have the most to gain from promotional reviews. The researchers looked at one-star to five-star reviews and compared these across the types of hotels and also between the two sites.

Their results were consistent with their theories; independent hotels were more likely to manipulate reviews than the other two categories of hotels. The authors add however that “While the total amount of review manipulation is economically significant, it is still small relative to the total amount of reviewing activity.”

What would be suitable substitute for a pay rise? According to Linus Siming, an assistant professor of finance in the department of finance at Bocconi University in Milan, Napoleon’s maxim that “A soldier will fight long hard and hard for a bit of coloured ribbon” holds true for today’s chief executive.

The professor found that after the Swedish government changed its regulations preventing Swedish chief executives from receiving the Order of Vasa – a merit award for excellence in business – these executives demanded higher financial compensation. Accounting for other variables such as age, when he compared compensation figures from before 1974 and after that date (when the regulations were changed) Prof Siming found that chief executives who had not been awarded the order received on average almost 7 per cent higher compensation than their pre-reform colleagues.

Prof Siming points out that although post 1974 compensation for chief executives increased it did not correspond with the company’s performance, suggesting that the honour “served as a shareholders’ rather than society’s incentive mechanism’.

Orders of merit and CEO compensation: evidence from a natural experiment is funded by Bocconi’s Centre for Applied Research in Finance.

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