Christopher Groening

The Long Term Stock Market Valuation of Customer Satisfaction

Firm valuation has been an important domain of interest for finance. However, most financial models do not include customer-related metrics in this process. Studies in marketing have found that one particular customer metric, customer satisfaction, improves the ability to predict future cash flows, long-term financial measures, stock performance, and shareholder value. However, most of these studies predominantly employ models that are not directly used in finance practice. This article extends existing literature by examining the impact of customer satisfaction on firm valuation by employing multiples and risk-adjusted abnormal return models borrowed directly from the practice of finance. Data include 3600 firm-quarter observations from the American Customer Satisfaction Index, COMPUSTAT, and Center for Research in Securities Prices databases from 1996 to 2006. The results indicate that a portfolio of stocks consisting of firms with high levels and positive changes in customer satisfaction will outperform the other three possible portfolio combinations (low levels and negative changes, low levels and positive changes, and high levels and negative changes in customer satisfaction) along with Standard & Poors 500. Initially, the stock market undervalues positive satisfaction information, but the market adjusts in the long run.

How Employer and Employee Satisfaction Affect Customer Satisfaction: An Application to Franchise Services

In small-service settings, how do owner satisfaction, front-line employee satisfaction, and customer satisfaction relate to one another? The authors use generalized exchange theory (GET) to examine how satisfaction levels of these three constituents are reciprocated. The authors examine a European franchise system comprising 50 outlets, 933 employees, and 20,742 customers. Their results show two important findings. First, the effect of owner-franchisee’s satisfaction on customer satisfaction is fully mediated by front-line employee satisfaction. Thus, managers of a service outlet can strongly impact the satisfaction and behavioral intentions of their customer base, even without direct contact with them. Second, the link between customer satisfaction and purchase intention is moderated by employee satisfaction at an outlet. The link between customer satisfaction and customer purchase intentions is almost twice as strong when employees are satisfied than when they are not. Thus, there is a ‘‘doublepositive effect:’’ not only does higher employee satisfaction at an outlet directly lead to higher customer satisfaction but it also indirectly strengthens the association between customer satisfaction and their repurchase intentions.

How Achieving the Dual Goal of Customer Satisfaction and Efficiency in Mergers Affects a Firm’s Long-Term Financial Performance

This article investigates how engaging in a merger moderates the joint impact of a firm’s achievement of dual goals of customer satisfaction and firm efficiency on a firm’s long-term financial performance. Many prominent firms grow through mergers. Recent examples in the services context include the merger between Toronto-Dominion Bank and Canada Trust, and the merger between Continental and United Airlines. Our results show that joint achievement of customer satisfaction and efficiency is beneficial in merger contexts, but not in nonmerger contexts. We investigate the moderating role of mergers using a longitudinal panel of 429 observations across multiple firms and industries. These results suggest that merging firms should not take a myopic perspective of only wresting efficiencies (as the finance literature suggests). Rather, merging firms should focus on simultaneously improving customer satisfaction and improving efficiency to maximize long-term firm value.

Cross-Validation of Customer and Employee Signals and Firm Valuation

Previous studies have shown that a firm needs to rely on its customers and employees to achieve superior performance. In this study, the authors draw on signaling theory to develop and empirically test a cross-validation argument. They argue that how a firm treats one stakeholder group will be interpreted by investors in conjunction with how the firm treats another stakeholder group. Investors use consistency in stakeholder group treatment as a signal of complementarity in a firms investments, which can improve the likelihood of competitive advantage. Specifically, the authors propose that a firms achievements (lapses) directed at customers have a stronger positive (negative) impact on investors’ valuation of the firm if they are validated by the firms achievements (lapses) directed at employees, and vice versa. Applying a multilevel model to a large sample of firms across various industries between 1994 and 2010, the authors find evidence to support these arguments. In addition, they find that cross-validation is more crucial for firms with a narrow than a broad business scope.

Does Customer Satisfaction lead to an increased firm value

Abstract Does customer satisfaction really lead to increased firm value? Traditionally, most financial valuation models do not include customer-related metrics such as customer satisfaction in the process. Studies in marketing, on the other hand, have consistently found that customer satisfaction improves the ability to predict future cash flows, long-term financial measures, stock performance, and shareholder value. This research examines the impact that customer satisfaction has on firm value by employing valuation models borrowed directly from the practice of finance. The data used in the analysis is compiled by merging publicly available customer satisfaction data from the ACSI (American Customer Satisfaction Index) with financial data from COMPUSTAT, and Center for Research in Securities Prices between 1996 and 2006. The results indicate that a portfolio of stocks consisting of firms with high levels and positive changes in customer satisfaction will outperform lower satisfaction portfolios along with Standard & Poor’s 500… Customer satisfaction does matter!