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The Effect of Online Reviews on the Shares of Video Game Publishing Companies Cesar Alejandro Arias Canto Dissertation submitted in partial fulfilment of the requirements for the degree of Master of Business Administration (MBA) in Finance at Dublin Business School Supervisor: Richard O’Callaghan August 2019 2 Declaration I declare that this dissertation that I have submitted to Dublin Business School for the award of Master of Business Administration (MBA) in Finance is the result of my own investigations, except where otherwise stated, where it is clearly acknowledged by references. Furthermore, this work has not been submitted for any other degree. Signed: Cesar Alejandro Arias Canto Student Number: 10377231 Date: June 10th, 2019 3 Acknowledgments I would like to thank all the lecturers whom I had the opportunity to learn from. I would like to thank my lecturer and supervisor, Richard O’Callaghan. One of the best lecturers I have had throughout my education and a great person. I would like to thank my parents and family for the support and their love. 4 Contents Table of Contents Declaration ................................................................................................................................... 2 Acknowledgments ...................................................................................................................... 3 Contents ....................................................................................................................................... 4 Tables and figures index ........................................................................................................... 7 Figures ..................................................................................................................................... 7 Tables ....................................................................................................................................... 8 Abstract ...................................................................................................................................... 10 1. Introduction ........................................................................................................................ 11 1.1. Research Objectives ................................................................................................ 11 1.1.1. Definitions .............................................................................................................. 12 2. Literature Review .............................................................................................................. 14 2.1. Importance of the issue. .............................................................................................. 14 2.1.2. Video game popularity .......................................................................................... 14 2.2. Determinants of Company Valuation ......................................................................... 15 2.2.1. Firm Value – Discounted Cash Flows ................................................................ 15 2.2.2. Firm value – Other theories ................................................................................. 16 2.2.3. Use of Discounted Cash Flows in this research ............................................... 17 2.3. Video game reviews. .................................................................................................... 17 2.3.1. Professional critic versus ordinary player reviews ........................................... 18 2.3.2. Reviewing and rating. ........................................................................................... 18 2.3.3. Timing of reviews ................................................................................................... 19 2.4. Impact of reviews on sales .......................................................................................... 19 2.4.1. Linking reviews to consumer behaviour ............................................................. 19 2.4.2. The effect of positive and negative reviews ...................................................... 20 2.4.3. Discrepancies between professional and enthusiast reviewers ..................... 21 2.4.4. The effect of the volume of reviews .................................................................... 22 2.2.5. Ancillary effects of reviews ................................................................................... 22 2.5. Reviews and sales revenue ........................................................................................ 22 2.5.1. Rating of reviews and sales ................................................................................. 23 2.5.2. Volume of reviews and sales ............................................................................... 23 2.5.3. Volume of reviews from critic versus consumer and sales ............................. 24 2.5.4. Ratings from critic versus consumers and sales .............................................. 24 2.5.5. Reviews and sales revenue conclusion ............................................................. 24 5 2.6. The impact of reviews on company valuation .......................................................... 25 2.6.1. Impact of reviews previous to the release of a product ................................... 25 2.6.2 Impact of reviews subsequent to the release of a product ............................... 25 2.7. Literature review conclusion ........................................................................................ 26 2.7.1. Implications of the research with the literature ................................................. 26 3. Research Methodology .................................................................................................... 27 3.1. Introduction .................................................................................................................... 27 3.2. Research Design ...................................................................................................... 28 3.2.1. Research Philosophy. ........................................................................................... 28 3.2.2. Research Approach. ............................................................................................. 30 3.2.3. Research strategy. ................................................................................................ 30 3.3. Sampling .................................................................................................................... 32 3.4. Procedure and limitations of the methodology ..................................................... 35 3.5. Ethics .......................................................................................................................... 38 4. Results ............................................................................................................................... 39 4.1. Introduction .................................................................................................................... 39 4.2. Video Game Market ................................................................................................. 39 4.2.1. Market capitalisation of the chosen companies ........................................... 39 4.2.2. Video game firm share price ........................................................................... 41 4.2.3. Comparison of share movements including comparison with the market 41 4.3. Video game reviews ................................................................................................. 43 4.3.2. Rating – professional critic versus enthusiast reviews .................................... 46 4.3.3. Game reviews Standard Deviation pre and post-release ............................... 51 4.3.4. Reviews by professional reviewers – daily Standard Deviation ..................... 52 4.3.5. Reviews by enthusiast critics – daily Standard Deviation ............................... 53 4.4. Reviews and Market Capitalisation ........................................................................ 54 4.4.1. Relationship between game review mark and market capitalisation ........ 54 4.4.2. Call of Duty: Advanced Warfare ..................................................................... 56 4.4.3. Red Dead Redemption 2 ................................................................................. 58 4.4.4. Anthem ............................................................................................................... 61 4.5. Relationship between game reviews volume and market capitalisation .......... 63 4.5.1. Call of Duty: Advanced Warfare ..................................................................... 65 4.5.2. Red Dead Redemption 2 ................................................................................. 67 4.5.3. Anthem ............................................................................................................... 69 5. Discussion ......................................................................................................................... 71 5.1. Findings on review statistics ................................................................................... 71 6 5.2. Findings on market capitalisation ........................................................................... 71 5.3. Findings on the relationship between game review mark and market capitalisation .........................................................................................................................