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Executive Summary
Over the last decade, several studies have argued that customer satisfaction has high relevance for the Wall Street community because it has a significant impact on stock returns. However, little attention has been given to understanding the impact of customer satisfaction on the risk of stock returns. This study develops, tests, and finds empirical support for the hypotheses that positive changes (i.e., improvement) in customer satisfaction result in negative changes (i.e., reduction) in overall and downside systematic and idiosyncratic risk. Using a sample of publicly traded U.S. firms and data from the American Customer Satisfaction Index, the study finds that investments in customer satisfaction insulate a firm’s stock returns from market movements (overall and downside systematic risk) and lower the volatility of its stock returns (overall and downside idiosyncratic risk). The results are robust to alternative measures of risk, model specifications, and concerns related to sample composition raised in some recent studies. Therefore, the results indicate that customer satisfaction is a metric that provides valuable information to the Wall Street community, complementing the information contained in accounting measures.

Biography
Kapil R. Tuli is Assistant Professor of Marketing in the Lee Kong Chian School of Business at Singapore Management University. He completed his PhD from Emory University (Goizueta Business School). In addition, he has a master’s degree in Marketing from Texas A&M University (Lowry Mays School of Business, College Station, Texas), a postgraduate diploma in Marketing from Narsee Monjee Institute of Management Studies (Mumbai, India), and bachelor’s degree in Chemistry from Mumbai University (India). His research interests include marketing strategy, customer relationship management, and customer solutions. He has published in Journal of Marketing and Journal of Marketing Research.

Sundar G. Bharadwaj is Professor of Marketing in the Goizueta Business School at Emory University and Visiting Professor of Marketing in the Wharton School at the University of Pennsylvania. His research has been published in Journal of Marketing, Journal of Marketing Research, Management Science, Information Systems Research, and i, among others. His research is conducted at the marketing strategy–financial performance interface and includes interests in innovation, brand and customer management, cross-functional interactions, and customer solutions.

Journal of Marketing, Volume 73, Number 6, November 2009
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