Customer satisfaction as a buffer against sentimental stock-price corrections

Abstract

Previous research has shown that customer satisfaction is a market-based asset that can contribute to a firm’s value by increasing its stock-market returns, while simultaneously reducing the riskiness of these returns. This study contributes to the growing literature on the marketing–finance interface by examining the relationship between customer satisfaction and a type of risk that has not been previously studied in the marketing literature: the vulnerability of a firm’s stock price to the stock-market corrections that typically follow periods of high investor sentiment. The results show that customer satisfaction can function as a buffer against the risk of such sentimental stock-price movements and reduces their negative impact on a firm’s market value. In particular, we find that firms with higher (lower) levels of customer satisfaction exhibit smaller (greater) price corrections and higher returns after periods of high investor sentiment.