Impact of Negative Word of Mouth on Firm Value

With the development of information and communication technology and spread of smart devices, online information exchange has become a daily routine. Accordingly, the management and utilization of online word of mouth (WOM) has become an important issue for companies. Numerous studies have examined the impact of online WOM on firm performance. This study analyzes the impact of negative word of mouth (NWOM) on firm value, considering the influence of corporate social responsibility (CSR) activity and research and development (R&D) investment. Using a hierarchical linear model, we find that 1) NWOM has a negative impact on firm value, 2) CSR activities do not significantly influence this impact, and 3) R&D investment reduces this negative impact. This study contributes by demonstrating the effect of NWOM on firm value, examining the influence of CSR activities and R&D investment on the impact of NWOM, and confirming that the hierarchical linear model can be applied effectively to panel data in empirical studies. As a practical implication, companies must prevent and manage NWOM, whose impact, when caused by an unavoidable incident, can be alleviated by proactively announcing that the company is striving for competitiveness, for instance, by investing in R&D.