Customer sentiment and firm performance

The paper consists of two essays, both associating customer sentiment with firm performance. The first essay investigates the power of User-Generated Content (UGC) in explaining firm product and financial market performances. The second essay examines how brand equity can moderate a product recall's impact on the announcing firm and its competitors in the financial market. In the first essay, we utilize a high involvement durable product category (i.e. automobiles) as our sampling framework, and our findings confirm UGC's predictive power and help resolve existing ambiguities in existing UGC research. We use a market share attraction model to investigate how UGC contribute to firms' success in the product market. We also investigate the impact that UGC communications exert on the firm's financial performance, by inspecting its influence on firm idiosyncratic stock returns, Overall, We find that UGC communications have a direct effect on firms' success in the financial market. Furthermore, we find that for both the product and financial markets, long term owner reviews influence market responses more decisively than new owners' reviews. For the second essay, we examine the role of customer-based brand equity in moderating the impact of a product recalls on the firms' short-term abnormal stock returns. We construct a sample of all (non-automobile) product recalls announced between January 2001 and December 2006 by three Government agencies, Dow Jones Newswire, and The Wall Street Journal and match these product recall events with firm-level customer-based brand equity measures from the EquiTrend© database. Supporting previous studies we find that product recalls result in sizeable short-term negative abnormal stock returns for the announcing firms. More importantly the results suggest that strong brand equity attenuates the negative impact of these recalls for these firms, while potentially benefiting their competitors. By decomposing the brand equity into brand familiarity and brand quality, the study finds that brand quality is alleviating the focal firms from negative impact of a product recall, while brand familiarity is the driving force behind the benefits of a strong brand for competitors. Overall, these two studies advance marketing knowledge and our understanding of how market intelligence impacts the firm's performance, both on the product and financial marketplaces.