Do Analysts’ Earnings Forecasts Incorporate Customer Satisfaction Information?

Abstract

This study examines the effects of customer satisfaction on analysts’ earnings forecast errors. Based on a sample of analysts following companies measured by the American Customer Satisfaction Index (ACSI), we find that customer satisfaction reduces earnings forecast errors. However, analysts respond to changes in customer satisfaction but not to the ACSI metric per se. Furthermore, the effects of customer satisfaction are asymmetric; for example, analysts overreact to positive customer satisfaction information more than they respond to negative satisfaction information. Similarly, customer satisfaction reduces negative deviation more than positive deviation of the analysts’ forecasts from actual earnings. Finally, the effects of customer satisfaction on analysts’ forecast errors differ across economic sectors. We discuss the implications of our results for marketers and participants in financial markets. Forthcoming in Journal of the Academy of Marketing Science (see Online First)

Keywords: Customer Satisfaction, ACSI, Forecast Errors, Dynamic Panel Models