Is customer satisfaction a relevant metric for financial analysts?

Abstract

published on line : 2011/01/08International audienceThis study examines the effects of customer satisfaction on analysts' earnings forecast errors. Based on a sample of analysts following companies measured by the American Customer Satisfaction Index (ACSI), we find that customer satisfaction reduces earnings forecast errors. However, analysts respond to changes in customer satisfaction but not to the ACSI metric per se. Furthermore, the effects of customer satisfaction are asymmetric; for example, analysts are more willing to use good news (i.e. an increase in customer satisfaction information) than bad news (i.e. a decrease in satisfaction). Similarly, customer satisfaction reduces negative deviation more than positive deviation of the analysts' forecasts from actual earnings. Furthermore, the effects of customer satisfaction depend upon the base level of satisfaction that the firm has achieved. Finally, the effects of customer satisfaction on analysts' forecast errors differ across firms with volatile satisfaction scores and those with stable satisfaction scores. We discuss the implications of our results for marketers and participants in financial markets

The HRM–capital market link: Effects of securities analysts on strategic human capital

“…They collect all sorts of information, including information on economic and industry trends, the financial performance of firms, changes in their strategies and processes, new product launches, customer satisfaction, the hiring of management consultants, R&D investments, and the track record of the top management team (Bergh & Gibbons, 2011;García-Meca & Martinez, 2007;Lev, 2011;Ngobo, Casta, & Ramond, 2012;Rogers & Grant, 1997;Ulrich, 2015). Their information sources include corporate reports; firms' disclosures through their web pages, newswire, and conference calls; private communication with CEOs, CFOs, investor relations specialists, suppliers, and former and current employees of the firms they cover; and the reports of other securities analysts (Bushee, Jung, & Miller, 2013;Bushee & Miller, 2012;Lev, 2011).…”

“…Thus, while coverage of firms by securities analysts may pose a factor exacerbating short termism, their information gathering simultaneously has the potential to mitigate short termism with respect to those investments and activities that are taken into account in forecasting future earnings. Research on their treatment of other types of intangibles has yielded that analysts are particularly concerned with information about change, or factors that may bring about change, in relation to intangibles and associated future earnings streams (Ngobo et al, 2012). For example, they were found to pay attention to new product launches, changes in a firm's strategy, new investments (García-Meca & Martinez, 2007), changes in customer satisfaction (Ngobo et al, 2012), the hiring of management consultants (Bergh & Gibbons, 2011), and organizational restructurings (Rogers & Grant, 1997).…”

“…Research on their treatment of other types of intangibles has yielded that analysts are particularly concerned with information about change, or factors that may bring about change, in relation to intangibles and associated future earnings streams (Ngobo et al, 2012). For example, they were found to pay attention to new product launches, changes in a firm's strategy, new investments (García-Meca & Martinez, 2007), changes in customer satisfaction (Ngobo et al, 2012), the hiring of management consultants (Bergh & Gibbons, 2011), and organizational restructurings (Rogers & Grant, 1997). The analysts' valuation models reflect their assumptions about relationships of various parameters with future earnings streams (Benner & Ranganathan, 2013).…”

“…Likewise, retention-related HRM practices (such as the operation of a grievance procedure or payment of group-based rewards) need to be invested in on a recurring basis. With respect to those SHC investment categories, analysts should then require information about changes to recurring investments (across the firm segment).Information about levels of recurring investment as such should be less relevant(Ngobo et al, 2012). Once effects of, for instance, employing more (or less) qualified, capable, and skilled employees have materialized in earnings (and/or been factored into the stock price), the continued employment of the same types of employees, or the continued provision of the same levels and types of training (across the firm segment), should not further impact on future earnings and the share price, all other factors being equal.…”

The HRM-Capital-Market Link: Effects of Securities Analysts on Strategic Human Capital

“…Securities analysts are employed by small blockholders to analyze and recommend stock (Ramnath, Rock, & Shane, 2008). They collect all sorts of information, including information on economic and industry trends, the financial results of firms, changes in their strategies and processes, new product launches, customer satisfaction, the hiring of management consultants, R&D investments, and the track record of the top management team (Bergh & Gibbons, 2011;García-Meca & Martinez, 2007;Lev, 2011;Ngobo, Casta, & Ramond, 2012;Rogers & Grant, 1997;Ulrich, 2015). Their information sources include annual reports, firm announcements, communications with CEOs, CFOs, investor relations specialists, suppliers, and former and current employees of the firms they cover, reports of other securities analysts, and any other sources that are relevant and accessible (Bushee, Jung, & Miller, 2013;Bushee & Miller, 2012;Lev, 2011).…”