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Customer satisfaction as a buffer against sentimental stock-price corrections

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Abstract

Previous research has shown that customer satisfaction is a market-based asset that can contribute to a firm’s value by increasing its stock-market returns, while simultaneously reducing the riskiness of these returns. This study contributes to the growing literature on the marketing–finance interface by examining the relationship between customer satisfaction and a type of risk that has not been previously studied in the marketing literature: the vulnerability of a firm’s stock price to the stock-market corrections that typically follow periods of high investor sentiment. The results show that customer satisfaction can function as a buffer against the risk of such sentimental stock-price movements and reduces their negative impact on a firm’s market value. In particular, we find that firms with higher (lower) levels of customer satisfaction exhibit smaller (greater) price corrections and higher returns after periods of high investor sentiment.

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Notes

  1. Some ACSI scores concern brands that belong to a parent company. In this case, we take the weighted average of the ACSI for all brands belonging to a same parent company.

  2. Different industries in the ACSI are measured at different times of the year. To align the other variables that we use in our analyses (e.g., investor sentiment) with these quarterly measurements of the ACSI, we follow the work of Grewal et al. (2010) and calculate these variables using the most recent information available at the end of each quarter in which the ASCI for the firms in the respective industry is measured.

  3. Available on Jeffrey Wurgler’s website: http://people.stern.nyu.edu/jwurgler/.

  4. We use the well-established practice in the finance literature of using decile portfolios of firms instead of individual firms to make the results less susceptible to noise and to avoid problems of having only limited sample periods available for some individual firms (see Banz 1981; Fama and French 1992; Black and Scholes 1974). Furthermore, using portfolios of firms is consistent with the existing finance literature that examines the effects of investor sentiment on stock returns (Baker and Wurgler 2006, 2007). Fixed effects are captured in these models by having a separate coefficient (“fixed effect”) for each decile portfolio (1 to 10). Time-varying effects are included in these models through the common factors from the Fama and French (1993) and Carhart (1997) models (i.e., RMRF, SMB, HML, UMD). The null hypothesis in these types of regression models is that apart from the common factors, there should not be any systematic effect of other factors, such as investor sentiment.

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Acknowledgments

The authors thank the editor, Frank R. Kardes, and an anonymous reviewer for their insightful comments that helped us improve the manuscript. The authors thank Jeroen Derwall and Peter Schotman for their useful suggestions regarding the econometric analyses. Finally, the authors thank Donna Maurer for her editorial help.

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Authors and Affiliations

  1. Department of Finance, School of Business and Economics, Maastricht University, P.O. Box 616, 6200 MD, Maastricht, The Netherlands

    Robert P. Merrin, Arvid O. I. Hoffmann & Joost M. E. Pennings

  2. Marketing-Finance Research Lab, School of Business and Economics, Maastricht University, P.O. Box 616, 6200 MD, Maastricht, The Netherlands

    Robert P. Merrin, Arvid O. I. Hoffmann & Joost M. E. Pennings

  3. Network for Studies on Pensions, Aging and Retirement (Netspar), P.O. Box 90153, 5000 LE, Tilburg, The Netherlands

    Arvid O. I. Hoffmann

  4. Department of Marketing, School of Business and Economics, Maastricht University, P.O. Box 616, 6200 MD, Maastricht, The Netherlands

    Joost M. E. Pennings

  5. Department of Marketing and Consumer Behavior, Wageningen University, Hollandseweg 1, 6706 KN, Wageningen, The Netherlands

    Joost M. E. Pennings

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  1. Robert P. Merrin
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  2. Arvid O. I. Hoffmann
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  3. Joost M. E. Pennings
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Correspondence to Arvid O. I. Hoffmann.

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Merrin, R.P., Hoffmann, A.O.I. & Pennings, J.M.E. Customer satisfaction as a buffer against sentimental stock-price corrections. Mark Lett 24, 13–27 (2013). https://doi.org/10.1007/s11002-012-9219-9

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  • DOI: https://doi.org/10.1007/s11002-012-9219-9

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