Xueming Luo

The Debate Over Doing Good: Corporate Social Performance, Strategic Marketing Levers, and Firm-Idiosyncratic Risk

Marketers and investors face a heated, provocative debate over whether excelling in social responsibility initiatives hurts or benefits firms financially. This study develops a theoretical framework that predicts (1) the impact of corporate social performance (CSP) on firm-idiosyncratic risk and (2) the role of two strategic marketing levers, advertising and research and development (R&D), in explaining the variability of this impact among different firms. The results show that higher CSP lowers undesirable firm-idiosyncratic risk. Notably, although the salutary impact of CSP is greater in firms with higher (versus lower) advertising, a simultaneous pursuit for CSP, advertising, and R&D is harmful with increased firm-idiosyncratic risk. For theory, the authors advance the literature on the marketing–finance interface by drawing attention to the risk-reduction potential of CSP and by shedding new light on some critical but neglected roles of strategic marketing levers. They also extend CSP research by moving away from the long-fought battle for a universal CSP impact and toward a finer-grained understanding of when some firms derive more risk-reduction benefits from CSP. For practice, the results indicate that the “goodwill refund” of CSP is not unconditional. They also empower marketers to communicate more effectively with investors (i.e., doing good to better manage the risk surrounding firm stock prices).

Neglected Outcomes of Customer Satisfaction

Although there is significant evidence that customer satisfaction is an important driver of firm profitability, extant literature has largely neglected two intermediate outcomes of customer satisfaction, namely, a firms advertising and promotion efficiency and its human capital performance. On the basis of longitudinal analyses of large-scale secondary data from multiple sources, the authors find that customer satisfaction boosts the efficiency of future advertising and promotion investments. This finding can be explained by the possibility that customer satisfaction generates free word-of-mouth advertising and saves subsequent marketing costs. In addition, customer satisfaction has a positive influence on a companys excellence in human capital (employee talent and manager superiority). This finding is highly novel, indicating that human resources managers should have a strong interest in customer satisfaction as well. Finally, the authors investigate the moderating influence of market concentration on both relationships. The uncovered results have important implications for marketers in their dialogue with financial executives and human resources managers.

Social Media and Firm Equity Value

Companies have increasingly advocated social media technologies to transform businesses and improve organizational performance. This study scrutinizes the predictive relationships between social media and firm equity value, the relative effects of social media metrics compared with conventional online behavioral metrics, and the dynamics of these relationships. The results derived from vector autoregressive models suggest that social media-based metrics Web blogs and consumer ratings are significant leading indicators of firm equity value. Interestingly, conventional online behavioral metrics Google searches and Web traffic are found to have a significant yet substantially weaker predictive relationship with firm equity value than social media metrics. We also find that social media has a faster predictive value, i.e., shorter “wear-in” time, than conventional online media. These findings are robust to a consistent set of volume-based measures total blog posts, rating volume, total page views, and search intensity. Collectively, this study proffers new insights for senior executives with respect to firm equity valuations and the transformative power of social media.

Evaluating the profitability and marketability efficiency of large banks: An application of data envelopment analysis

Abstract Banking efficiency literature mostly addressed profitability efficiency (activities generating more profits for a bank), ignoring marketability efficiency (activities generating more market value). Applying a nonparametric frontier method—data envelopment analysis (DEA)—with a sample of 245 large banks, this study provides evidence that current large banks acquire relatively lower level of marketability efficiency. There are 34 (about 14%) banks that obtain higher level of profitability performance but lower level of marketability performance. Results also indicate that the geographical location of banks seems not related to either the profitability or marketability efficiency. Finally, overall technical efficiency (OTE) of the profitability performance can predict the likelihood of bank failures.

Integrating customer orientation, corporate entrepreneurship, and learning orientation in organizations-in-transition: an empirical study

The paper addresses the issue of interrelationships between market orientation, corporate entrepreneurship, and learning orientation in the context of emerging economies. These three constructs have drawn an increasing level of interest in both marketing and management fields as organizations face challenges in a volatile environment. With a national sample of state-owned enterprises in China, the present study simultaneously tests potential relations between these structural constructs and their relationships with the organizational outcome that is reflected with marketing program dynamism. The findings of this study indicate that: (1) sampled state-owned enterprises demonstrate a higher level of changes in organizational outcome resulted from a stronger customer orientation, corporate entrepreneurship, or learning orientation; (2) learning orientation fully or partially mediates the impact of customer orientation and corporate entrepreneurship on outcome; (3) state-owned enterprises with foreign partnership have a higher level of customer orientation, entrepreneurship, and learning orientation; and (4) state-owned enterprises in the service sector have a higher level of customer orientation.

Quantifying the Long-Term Impact of Negative Word of Mouth on Cash Flows and Stock Prices

This paper seeks to quantify the long-term financial impact of negative word of mouth (NWOM), an issue that has long challenged extant research. We do so with real-world data on firm security prices. The developed time-series models innovatively uncover (1) short-and long-term effects of NWOM on cash flows, stock returns, and stock volatilities, and (2) NWOMs “wear-in” effects (i.e., it takes a number of months before the stock price impact of NWOM reaches the peak point) and “wear-out” effects (i.e., it takes several months after the peak before the stock price impact of NWOM dies out completely). In addition, the results related to endogeneity and feedback effects from the stock market are also interesting, supporting the idea that historical underperformance in stock prices may breed more harmful future buzz in a “vicious” cycle of NWOM. After controlling for competition, NWOMs long-term financial harm becomes more destructive in magnitude, kicks in more quickly, and haunts investors longer. Overall, these findings offer some unique implications for buzz management, time-series models quantifying the financial impact of word of mouth, and the marketing-finance interface.

Market-oriented organizations in an emerging economy: A study of missing links

Abstract The advantages of market orientation, entrepreneurship, and learning orientation to organizations have been evidently documented in Western economies. However, there has been little research into these practices and their impact on enhancing competitive advantages in emerging economies. This exploratory study, utilizing data from Chinas emerging economy, found that organizations with higher level of market orientation tend to be more learning-oriented, emphasize more on entrepreneurship, and be able to achieve higher level of organizational performance, than those with a lower level of market orientation.

Entrepreneurial firms in the context of China's transition economy: an integrative framework and empirical examination

Abstract Investigating corporate entrepreneurship in an emerging economy of China, this research proposes and substantiates an integrative framework that characterizes determinants for corporate entrepreneurship (institutional, organization-specific, and strategic market factors) and consequences of entrepreneurship (sales growth and market share performance). Our empirical results indicate that internationalization, firm size and age, and market orientation all impact on the practice of corporate entrepreneurship, which in turn contributes to superior performance. Empirically, this paper provides initial evidence demonstrating the multifaceted determinants of corporate entrepreneurship in a transition economy. Our findings suggest that the Chinese firms appear to be integrating institutional changes and market-oriented activities to facilitate organizational growth.

Customer Satisfaction, Analyst Stock Recommendations, and Firm Value

Although managers are interested in the financial value of customers and researchers have pointed out the importance of stock analysts who advise investors, no studies to date have explored the implications of customer satisfaction for analyst stock recommendations. Using a large-scale longitudinal data set, the authors find that positive changes in customer satisfaction not only improve analyst recommendations but also lower dispersion in those recommendations for the firm. These effects are stronger when product market competition is high and financial market uncertainty is large. In addition, analyst recommendations at least partially mediate the effects of changes in satisfaction on firm abnormal return, systematic risk, and idiosyncratic risk. Analyst recommendations represent a mechanism through which customer satisfaction affects firm value. Thus, if analysts pay attention to Main Street customer satisfaction, Wall Street investors should have good reason to listen and follow. Overall, this research reveals the impact of satisfaction on analyst-based outcomes and firm value metrics and calls attention to the construct of customer satisfaction as a key intangible asset for the investor community.

Globalization, Marketing Resources, and Performance: Evidence from China

Two important areas are underexplored in the relationship between marketing resources and performance. First, the subject has been primarily investigated in the context of Western countries, and inadequate attention has been given to emerging economies. Second, despite the recent growth in globalization, the moderating role of globalization on the link between marketing resources and performance has not been investigated. Addressing these important gaps, this article focuses on an emerging economy (China) and explores the moderating effect of globalization on this link. Specifically, the authors develop several hypotheses highlighting the moderating role of globalization activities (global product sourcing, global market seeking, and global partnership) on the link between marketing resources (market orientation, entrepreneurial orientation, and innovative capability) and firm performance. The findings of the moderating role of globalization provide several important implications for marketing theory development and managerial practice.