Kapil R. Tuli

Customer Satisfaction and Stock Returns Risk

Over the past decade, several studies have argued that customer satisfaction has high relevance for financial markets because it has a significant impact on stock returns. However, little attention has been given to understanding the impact of customer satisfaction on the risk of stock returns. The finance literature suggests that investors that judge performance only in terms of returns place more resources than warranted in risky opportunities, forgo profitable opportunities, and apply misguided performance evaluations. Accordingly, this study develops, tests, and finds empirical support for the hypotheses that positive changes (i.e., improvement) in customer satisfaction result in negative changes (i.e., reduction) in overall and downside systematic and idiosyncratic risk. Using a panel data sample of publicly traded U.S. firms and satisfaction data from the American Customer Satisfaction Index, the study demonstrates that investments in customer satisfaction insulate a firms stock returns from market movements (overall and downside systematic risk) and lower the volatility of its stock returns (overall and downside idiosyncratic risk). The results are robust to alternative measures of risk, model specifications, and concerns related to sample composition criteria raised in some recent studies. Therefore, the results indicate that customer satisfaction is a metric that provides valuable information to financial markets. The robust impact of customer satisfaction on stock returns risk indicates that it would be useful for firms to disclose their customer satisfaction scores in their annual report to shareholders.

Ties That Bind: The Impact of Multiple Types of Ties with a Customer on Sales Growth and Sales Volatility

Suppliers in business-to-business settings are increasingly building a portfolio of multiple types of ties with individual customers. For example, in addition to supplying goods and services, a supplier may have a research-and-development alliance and a marketing alliance with a customer. This study investigates the effect of multiple types of ties with a customer on a suppliers performance with the customer. The findings from panel data on supplier–customer relationships suggest that an increase in the number of different types of ties with a customer results in an increase in supplier sales to the customer and a decrease in sales volatility to that customer. The effect of a change in relationship multiplexity (i.e., number of different types of ties) on the change in sales becomes weaker and its effect on the change in sales volatility becomes stronger as the competitive intensity in the customers industry increases. The results also indicate that the effect of a change in the number of different types of ties on the change in sales volatility becomes stronger when the intangibles intensity in a customers industry increases. The results are robust to alternative measures, alternative estimators, heteroskedasticity, and endogeneity, among other methodological concerns. These findings have clear implications for managing multiple types of ties with a customer and indicate that relationship multiplexity is a valuable nonfinancial metric.

The Impact of Brand Quality on Shareholder Wealth

This study examines the impact of brand quality on three components of shareholder wealth: stock returns, systematic risk, and idiosyncratic risk. The study finds that brand quality enhances shareholder wealth insofar as unanticipated changes in brand quality are positively associated with stock returns and negatively related to changes in idiosyncratic risk. However, unanticipated changes in brand quality can also erode shareholder wealth because they have a positive association with changes in systematic risk. The study introduces a contingency theory view to the marketing–finance interface by analyzing the moderating role of two factors that are widely followed by investors. The results show an unanticipated increase (decrease) in current-period earnings enhances (depletes) the positive impact of unanticipated changes in brand quality on stock returns and mitigates (enhances) their deleterious effects on changes in systematic risk. Similarly, brand quality is more valuable for firms facing increasing competition (i.e., unanticipated decreases in industry concentration). The results are robust to endogeneity concerns and across alternative models. The authors conclude by discussing the nuanced implications of their findings for shareholder wealth, reporting brand quality to investors, and its use in employee evaluation.

The Effect of CRM Outsourcing on Shareholder Value: A Contingency Perspective

One central business activity that companies increasingly outsource is the information systems IS function. Previous research has shown that outsourcing of back-office IS generally has a positive effect on shareholder value of the outsourcing firm. Much less is known about the performance implications of outsourcing of another important IS function, namely, front-office customer relationship management CRM systems, where the vendor uses its own personnel and software to perform several CRM tasks. Previous, largely anecdotal evidence shows that the performance implications of outsourcing CRM range from very negative to very positive. To address this unsatisfactory state of knowledge, we provide and empirically test a contingency perspective on the performance implications of outsourcing CRM processes. We do so using the event-study methodology. The results are largely consistent with our contingency model. CRM outsourcing is more beneficial to firms that are high on information technology capabilities and low on marketing capabilities, and less beneficial when it concerns presales CRM. Similarly, although vendor economic distance has a positive influence on the outsourcing firms shareholder value, vendor cultural distance has a negative influence. These effects are in turn significantly moderated by the type of CRM process outsourced. This paper was accepted by Sandra Slaughter, information systems.

Do disclosures of customer metrics lower investors' and analysts' uncertainty but hurt firm performance?

Investors, analysts, and regulators frequently advocate greater disclosure of nonfinancial information, such as customer metrics. Managers, however, argue that such metrics are costly to report, reveal sensitive information to competitors, and therefore will lower future cash flows. To examine these counterarguments, this study presents the first empirical examination of the prevalence and consequences of backward- and forward-looking disclosures of customer metrics by manually coding 511 annual reports of firms in two industries, telecommunications (365 reports) and airlines (146 reports). The results reveal significant heterogeneity in the disclosure of customer metrics across firms and between industries. On average, in both industries, firms make more backward-looking than forward-looking disclosures. Notably, forward-looking disclosures of customer metrics are negatively associated with investors’ uncertainty in both industries and with analysts’ uncertainty in the telecommunications industry. Importantly, the results do not support the managerial thesis that such disclosures have a negative impact on future cash flows.

Global Private Label Convergence: Fact or Fiction?

This study considers a set of 67 countries to study whether PLs shares converge globally and if so to what long-run level PL shares in 60 product categories are expected to converge. The authors draw upon the economic convergence literature to establish an empirical specification that measures long-run PL share differentials relative to a stabilized reference country. As such, they use the notion of β-convergence, taking place when countries with an initially lower PL level grow faster than countries already closer to a common steady state.