The Effect of Competition on the Contracting Use of Customer Satisfaction: Evidence from the American Customer Satisfaction Index (ACSI)

56 Pages Posted: 31 Jul 2007 Last revised: 16 May 2014

See all articles by Clara Xiaoling Chen

Clara Xiaoling Chen

University of Illinois at Urbana-Champaign - Department of Accountancy

Ella Mae Matsumura

University of Wisconsin-Madison - Department of Accounting and Information Systems

Jae Yong Shin

Seoul National University - College of Business Administration

Date Written: October 23, 2008

Abstract

This paper empirically examines the effect of competition on the use of customer satisfaction in CEO compensation contracts. Specifically, using American Customer Satisfaction Index (ACSI) scores of firms, we investigate whether customer satisfaction is more closely associated with CEO cash compensation when industry competition increases. Consistent with our prediction, we find that ACSI scores are more closely associated with CEO annual bonus when industry competition becomes greater. Furthermore, we find stronger results when we use industry-adjusted ACSI scores, suggesting that relative customer satisfaction measures are more likely to be used in CEO compensation contracts when industry competition becomes greater. Overall, our results are consistent with competition increasing the usefulness of customer satisfaction measures in compensation contracts.

Keywords: Nonfinancial performance measures, customer satisfaction, competition, CEO compensation

JEL Classification: M41, M52, J33, L11

Suggested Citation

Chen, Clara Xiaoling and Matsumura, Ella Mae and Shin, Jae Yong, The Effect of Competition on the Contracting Use of Customer Satisfaction: Evidence from the American Customer Satisfaction Index (ACSI) (October 23, 2008). AAA 2008 MAS Meeting Paper, Available at SSRN: https://ssrn.com/abstract=1004117 or http://dx.doi.org/10.2139/ssrn.1004117

Clara Xiaoling Chen

University of Illinois at Urbana-Champaign - Department of Accountancy ( email )

1206 South Sixth Street
Champaign, IL 61820
United States

Ella Mae Matsumura (Contact Author)

University of Wisconsin-Madison - Department of Accounting and Information Systems ( email )

School of Business
975 University Avenue
Madison, WI 53706
United States
608-262-9731 (Phone)
608-265-6040 (Fax)

Jae Yong Shin

Seoul National University - College of Business Administration ( email )

Seoul, 151-742
Korea, Republic of (South Korea)

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