Does Customer Satisfaction Matter to Investors? Findings from the Bond Market

This article examines whether customer satisfaction is associated with key metrics from corporate bond markets—namely, credit ratings and cost of debt financing. The authors draw on theory in marketing and finance to predict how customer satisfaction should be associated with both measures. To test the hypotheses, they employ the American Customer Satisfaction Index (ACSI) database of more than 150 publicly traded firms during the period from 1994 to 2004. The empirical work controls for factors that are known to influence the bond market, such as firm profitability and risk, as well as potential unobservable factors. The findings indicate that firms with lower customer satisfaction exhibit lower credit ratings and higher debt costs—financial consequences of customer satisfaction not previously observed. The results also suggest that the association between ACSI and cost of debt is attenuated by the inherent level of risk faced by the firm.