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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

Author

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  • Pierre Rostan

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

  • Alexandra Rostan

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

Abstract

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).

Suggested Citation

  • Pierre Rostan & Alexandra Rostan, 2012. "Assessing the Predictive Power of Customer Satisfaction for Financial and Market Performances: Price-to-Earnings Ratio is a Better Predictor Overall," International Review of Management and Marketing, Econjournals, vol. 2(1), pages 59-74.
  • Handle: RePEc:eco:journ3:2012-02-6
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    References listed on IDEAS

    as
    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. 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.
    3. Mark Rubinstein, 2002. "Markowitz's "Portfolio Selection": A Fifty-Year Retrospective," Journal of Finance, American Finance Association, vol. 57(3), pages 1041-1045, June.
    4. Bollerslev, Tim, 1986. "Generalized autoregressive conditional heteroskedasticity," Journal of Econometrics, Elsevier, vol. 31(3), pages 307-327, April.
    5. Robert Jacobson, 1990. "Unobservable Effects and Business Performance," Marketing Science, INFORMS, vol. 9(1), pages 74-85.
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    Citations

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    Cited by:

    1. Ghaith N. Al-Eitan & Nofan Hamed Al Oleemat, 2015. "The Causality Relationship between Financial Market Indexes and Financial Ratios: Evidence from Amman Stock Exchange," International Journal of Academic Research in Accounting, Finance and Management Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Finance and Management Sciences, vol. 5(2), pages 23-31, April.

    More about this item

    Keywords

    Customer satisfaction; Financial performance; Market performance; Price-to-Earnings; Financial ratio; Market ratio;

    JEL classification:

    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • M31 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Marketing
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

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