Customer Satisfaction and Financial Analysts Earnings Forecast Errors
Posted: 4 Feb 2011
Date Written: April 7, 2009
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.
Keywords: Customer Satisfaction, EPS Forecast Errors, Value Relevance, ACSI, GMM Dynamic Models
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