Blessing in Disguise? Environmental Shocks and Performance Enhancement

71 Pages Posted: 26 Jun 2018 Last revised: 7 Oct 2019

See all articles by Sumit Agarwal

Sumit Agarwal

National University of Singapore

Long Wang

ShanghaiTech University - School of Entrepreneurship and Management

Yang Yang

The Chinese University of Hong Kong - CUHK Business School

Multiple version iconThere are 2 versions of this paper

Date Written: October 6, 2019

Abstract

This study examines the consumer satisfaction and performance of firms in the service sector in response to reputation shocks caused by random and exogenous air pollution events. The study incorporates machine learning techniques, such as social media sentiment analysis and topic modelling, to analyze review texts and show that pollution shocks during haze episodes lead to significant decreases in consumer satisfaction, which can be explained by the changes in consumers’ mood rather than service quality. Moreover, while the level of consumer satisfaction immediately reverts to and then exceeds previous levels after the haze dissipates, such improvement in service quality is not persistent in the long run. The underlying mechanism is that firms with managers closely monitoring customer reviews and actively responding to negative feedback show significant improvements following a temporary reputation crisis due to a pollution shock. Our findings provide novel empirical evidence on how drivers of organizational reputation change in times of crisis and highlight the importance of realizing deficiencies in operation even in the absence of negative shocks.

Keywords: Air Pollution, Service Quality, Customer Review, Natural Language Processing, Machine Learning

JEL Classification: Q51, Q53, Z3, D83, D22

Suggested Citation

Agarwal, Sumit and Wang, Long and Yang, Yang, Blessing in Disguise? Environmental Shocks and Performance Enhancement (October 6, 2019). Available at SSRN: https://ssrn.com/abstract=3189351 or http://dx.doi.org/10.2139/ssrn.3189351

Sumit Agarwal

National University of Singapore ( email )

15 Kent Ridge Drive
Singapore, 117592
Singapore
8118 9025 (Phone)

HOME PAGE: http://www.ushakrisna.com

Long Wang

ShanghaiTech University - School of Entrepreneurship and Management ( email )

No.393 Middle Huaxia Road
Pudong district
Shanghai, AK Shanghai 210201
China

Yang Yang (Contact Author)

The Chinese University of Hong Kong - CUHK Business School ( email )

7/F, Cheng Yu Tung Building
12 Chak Cheung Street, Hong Kong
Hong Kong
Hong Kong

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