Jacobson and Mizik 2009

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Vol. 28, No. 5, September–October 2009, pp. 809–818 issn 0732-2399 eissn 1526-548X 09 2805 0809

informs

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doi 10.1287/mksc.1090.0495 © 2009 INFORMS

INFORMS holds copyright to this article and distributed this copy as a courtesy to the author(s). Additional information, including rights and permission policies, is available at http://journals.informs.org/.

The Financial Markets and Customer Satisfaction: Reexamining Possible Financial Market Mispricing of Customer Satisfaction Robert Jacobson
Diogenes Consulting, Seattle, Washington 98109, bob.jacobson@diogenesconsulting.com

Natalie Mizik
Graduate School of Business, Columbia University, New York, New York 10027, nm2079@columbia.edu

W

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.

Introduction
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...
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