Cross-Validation of Customer and Employee Signals and Firm Valuation

Journal of Marketing Research, Forthcoming

48 Pages Posted: 27 Jun 2015

See all articles by Christopher Groening

Christopher Groening

University of Missouri at Columbia - Department of Marketing

Vikas Mittal

Rice University

Yan Zhang

Rice University - Jesse H. Jones Graduate School of Business

Date Written: April 25, 2015

Abstract

Previous studies have separately shown that a firm needs to rely on its customers and employees to achieve superior performance. In this study, the authors draw on signaling theory to develop and empirically test a cross-validation argument. They argue that how a firm treats one stakeholder group will be interpreted by investors in conjunction with how the firm treats another stakeholder group. Investors use consistency in stakeholder group treatment as a signal of complementarity in a firm’s investments, which can improve the likelihood of competitive advantage. Specifically, the authors propose that a firm’s achievements (lapses) directed at customers have a stronger positive (negative) impact on investors’ valuation of the firm if they are validated by its achievements (lapses) directed at employees, and vice versa. Applying a multilevel model to a large sample of firms across various industries (1994-2010), they find evidence to support these arguments. In addition, they find that cross-validation is more crucial for firms with a narrow than a broad business scope.

Keywords: signaling theory, achievements and lapses, business scope, stakeholder

Suggested Citation

Groening, Christopher and Mittal, Vikas and Zhang, Yan Anthea, Cross-Validation of Customer and Employee Signals and Firm Valuation (April 25, 2015). Journal of Marketing Research, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2623204

Christopher Groening (Contact Author)

University of Missouri at Columbia - Department of Marketing ( email )

College of Business
Columbia, MO 65211
United States

Vikas Mittal

Rice University ( email )

6100 South Main Street
250 McNair
Houston, TX 77005-1892
United States

Yan Anthea Zhang

Rice University - Jesse H. Jones Graduate School of Business ( email )

6100 South Main Street
P.O. Box 1892
Houston, TX 77005-1892
United States

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