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The Stock Market Impact of Deceptive Reviews

Deceptive reviews are a widespread phenomenon. Amazon retailers benefit from buying such reviews. Their sales increase and their competitiveness improves due to a better search ranking position. On the other side, deceptive reviews inflate product ratings and mislead consumers about the true product quality with potentially negative consequences for customer satisfaction and the brand. Brand manufacturers, therefore, have no incentive to stimulate sales by purchasing deceptive reviews. But can they ignore the bias in product ratings initiated by retailers? This research analyses more than 14 million online reviews associated with ca. 650,000 products sold by 288 publicly listed firms via Amazon in the years 2004–2018. The results provide strong evidence that the bias induced by deceptive reviews is value-relevant and negatively predicts future stock returns.