Topic: The Cumulative Economic Value-Relevance of Customer Satisfaction

Speaker: Xueming Luo, Professor of University of Texas at Arlington

Time: 1:30-3:00pm, June 9, 2010

Location: Room217, New Building of GSM, Peking University.

Abstract

For any economic asset to be value-relevant, it must have predictive effects on future equity prices. In order to estimate the total economic value-relevance of customer satisfaction, it is thus necessary to examine both contemporaneous and intertemporal effects. Within the context of customer satisfaction, this is the first study to incorporate the latter. It is also the first study to control for conditional heteroskedasticity, simultaneous risk-return tradeoffs and serial correlation in contemporaneous relations between customer satisfaction and stock returns.

The results point to substantial customer satisfaction value-relevance, in terms of both concurrent and cumulative effects. We estimate the total risk-adjusted annualized abnormal effects to be 24-26%– much greater than previous studies– of which 10-12% is concurrent returns. The remaining effect evolves over time, peaks in two months and expires after four months. In addition, we find that the explanatory power of customer satisfaction returns on excess market returns is much greater than that of systematic risk factors, past market returns, and conventional macroeconomic variables. We also show that the economic effects of customer satisfaction cannot be explained by risk compensation. Rather, the opposite seems to be true: these returns are associated with lower risk.

Welcome to attend!