Customer Satisfaction and Internal Control

Abstract

We investigate whether customer satisfaction, measured by product ratings on Amazon.com, is associated with ineffective internal control over financial reporting. Internal control weakness will likely corrupt the information environment, compromise coordination, and divert corporate resources from improving customer satisfaction to addressing control deficiencies. Using a large sample of product rating data from Amazon.com, we find robust and consistent evidence that customer satisfaction is negatively associated with internal control weaknesses. Furthermore, the negative association is more pronounced for environment-level (versus other) internal control weaknesses, non-core (versus core) products, and more (versus less) operationally complex firms. Overall, our findings provide the direct evidence that ineffective internal control compromises customer satisfaction.

Keywords: customer satisfaction, internal control weakness, product ratings, Amazon.com, operating complexity