Customer Satisfaction and Stock Returns Risk

Abstract

Suppliers in business-to-business settings are increasingly building a portfolio of multiple types of ties with individual customers. For example, in addition to supplying goods and services, a supplier may have a R&D alliance, a marketing alliance, and a joint venture with the same customer. The present study investigates the effect of multiple types of ties with a customer on a supplier's performance with the customer. Findings from a panel data of supplier-customer relationships suggest that an increase in the number of different types of ties with a customer results in an increase in supplier sales to the customer, and a decrease in sales volatility to that customer. The effect of a change in relationship multiplexity (i.e., number of different types of ties) on the change in sales becomes weaker and its effect on the change in sales volatility becomes stronger as the competitive intensity in the customer's industry increases. Results also indicate that the effect of a change in the number of different types of ties on the change in sales volatility becomes stronger when the intangibles intensity in a customer's industry increases. Importantly, the results are robust to alternative measures, alternative estimators, heteroskedasticity and endogeneity among other methodological concerns. These findings have clear implications for managing multiple types of ties with customers. The findings also have implications for the reporting standards recommended by the Financial Accounting Standard Boards and indicate that the presence of different types of ties with a customer is a valuable non-financial metric.

Keywords: Relationship Multiplexity, Multiple types of ties, Financial Performance, Business-to-Business Customer Relationships, Sales Growth, Sales Volatility

JEL Classification: C33, D21, D23, D82, L14