Abstract
Using the emerging technology of large-scale textual analysis, this study examines use of the term “customer satisfaction” and its variants in the principal annual financial reports issued by publicly-traded U.S. corporations and filed with the Securities and Exchange Commission as Form 10-K. We document the frequency of the term’s occurrence in 10-Ks over the 1995 to 2013 period and differences in usage across industries. We then relate the term’s usage in 10-Ks to subsequent scores from the American Customer Satisfaction Index (ACSI) to determine whether management’s discussion of customer satisfaction in financial disclosures is credible. The commitment of management to shareholders versus, more broadly, stakeholders is a central question in business ethics and the integrity of management communication is a fundamental construct in the American Marketing Association’s Statement of Ethics. We document a complex relation between management’s discussion of customer satisfaction and subsequent reported satisfaction. We find that the general use of customer satisfaction (and similar terms) in 10-K documents is negatively correlated with subsequent ACSI scores. However, for retail firms, when the phrase is located near words indicating measurement or monitoring of the phenomenon the empirical relation is reversed and becomes positive.
Valuation Insight
Balvers, Gaski, and McDonald argue that the rhetoric used in financial reports may be relevant for valuation purposes under some conditions. Using usage of the term customer satisfaction as an example they find that lip service to this concept is not generally indicative of provision of a high level of customer satisfaction but does accurately reflect attention to this goal when it is mentioned in the credible context of measurement and monitoring of customer satisfaction.