doi 10.1287/mksc.1090.0495 © 2009 INFORMS
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The Financial Markets and Customer Satisfaction: Reexamining Possible Financial Market Mispricing of Customer Satisfaction Robert Jacobson
Diogenes Consulting, Seattle, Washington 98109, firstname.lastname@example.org
Graduate School of Business, Columbia University, New York, New York 10027, email@example.com
e investigate the association between information contained in the American Customer Satisfaction Index (ACSI) metric and future stock market performance. Some past research has provided results suggesting that the ﬁnancial markets misprice customer satisfaction; i.e., ﬁrms advantaged in customer satisfaction are posited to earn positive future-period abnormal stock returns. We reexamine this relationship and ﬁnd that statistically signiﬁcant evidence of ﬁnancial market mispricing of customer satisfaction is limited to ﬁrms in the computer and Internet sector. The results suggest that the mispricing anomaly reported in past research appears not to stem from a systemic failure of the ﬁnancial markets to impound the ﬁnancial implications of customer satisfaction into current stock price, but rather from abnormal returns achieved by a small group of satisfaction leaders in the computer and Internet sector over the period of study. Analyses based on unconditional risk covariates and analyses using conditional risk covariates estimated from short-window, high-frequency data support this ﬁnding. Key words: marketing metrics; valuation; mispricing; customer satisfaction; ﬁnancial performance; efﬁcient markets History: Received: January 12, 2009; accepted: February 17, 2009.
Under the efﬁcient market hypothesis, the price of a stock reﬂects all available information and provides an unbiased estimate of the value of a ﬁrm. However, contrary to the efﬁcient market hypothesis, some (e.g., Daniel et al. 1998) have suggested that it may take time for the market to correctly price some types of assets and strategic decisions. Market participants may not take into account the full effects of a strategy on a timely basis, but rather do so later on, when the effects of the strategy have been more fully reﬂected in other (e.g., accounting) performance metrics. Daniel and Titman (2003, p. 7) conclude that “there is considerable evidence that investors underreact to information conveyed by management decisions.” Past research has focused on assessing the ﬁnancial market’s ability to immediately and fully impound into the price of a ﬁrm’s stock the value of some intangible assets. Most notably, several studies report evidence suggesting that under certain conditions, the ﬁnancial market does not properly value levels and changes in research and development (R&D). For example, Chan et al. (2001) ﬁnd that the ﬁnancial markets are overly pessimistic about R&D-intensive stocks that have performed poorly in the past. They ﬁnd that 809
these ﬁrms earn positive future-term excess returns. Eberhart et al. (2004) examine the long-term performance of ﬁrms following substantial unexpected increases in R&D. They conclude that that the market initially underreacts to R&D spending and is slow to recognize the full extent of R&D future-term beneﬁts. Although these ﬁndings are consistent with ﬁnancial market mispricing, alternative explanations to market inefﬁciency have been offered to explain apparently anomalous results. For example, Chambers et al. (2002) present evidence suggesting that the presumed abnormal returns earned by R&D-intensive ﬁrms actually reﬂect additional risk associated with R&D. The degree to which R&D is...