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Assessing the Predictive Power of Customer Satisfaction for Financial and Market Performances: Price-to-Earnings Ratio is a Better Predictor Overall

  • Pierre Rostan

    (Centre of Commerce and Management, RMIT International University, Vietnam)

  • Alexandra Rostan

    (Centre of Commerce and Management, RMIT International University, Vietnam)

Registered author(s):

    Our paper shows that based on the RMSE criteria, Price-to-Earnings ratio is a better predictor of financial and market performances of the firm than the Customer Satisfaction index (CS). This conclusion is based on the choice of five financial and seven market indicators that we consider as proxies for financial and market performances with a sample comprising eighty-six companies: Book value, dividend yield, Gross Profit Margin, Price to Cash-Flows, Price-to-Earnings, Price to Sales, Annual return, ROA, ROE, ROI, Volatility and Tobin’s Q. However, CS clearly outperforms our five benchmarks (Tobin’s Q, Price-to-Cash Flows, Price-to-Earnings, Volatility or the indicator itself) when forecasting Tobin’s Q, Volatility, ROE and ROI. In periods of volatile market such as year 2008, CS is a more stable predictor of Volatility or ROE than the indicators themselves (i.e. Volatility for Volatility, ROE for ROE).

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    Article provided by Econjournals in its journal International Review of Management and Marketing.

    Volume (Year): 2 (2012)
    Issue (Month): 1 ()
    Pages: 59-74

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    Handle: RePEc:eco:journ3:2012-02-6
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    1. Robert Jacobson & Natalie Mizik, 2009. "The Financial Markets and Customer Satisfaction: Reexamining Possible Financial Market Mispricing of Customer Satisfaction," Marketing Science, INFORMS, vol. 28(5), pages 810-819, 09-10.
    2. Tim Bollerslev, 1986. "Generalized autoregressive conditional heteroskedasticity," EERI Research Paper Series EERI RP 1986/01, Economics and Econometrics Research Institute (EERI), Brussels.
    3. Mark Rubinstein, 2002. "Markowitz's "Portfolio Selection": A Fifty-Year Retrospective," Journal of Finance, American Finance Association, vol. 57(3), pages 1041-1045, 06.
    4. Robert Jacobson, 1990. "Unobservable Effects and Business Performance," Marketing Science, INFORMS, vol. 9(1), pages 74-85.
    5. Eugene W. Anderson & Mary W. Sullivan, 1993. "The Antecedents and Consequences of Customer Satisfaction for Firms," Marketing Science, INFORMS, vol. 12(2), pages 125-143.
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