| Author: | Siu, Kin Sang Bernard |
| Title: | Customer satisfaction : its association with CEO pay performance sensitivity, turnover performance sensitivity, CEO pay slice, a firm's R&D investment and cash holdings? |
| Advisors: | Tong, Wilson (AF) |
| Degree: | D.B.A. |
| Year: | 2019 |
| Subject: | Hong Kong Polytechnic University -- Dissertations Stockholders, Consumer satisfaction Chief executive officers -- Salaries, etc Corporate governance |
| Department: | Faculty of Business |
| Pages: | viii, 115 pages : color illustrations |
| Language: | English |
| Abstract: | There has been a lot of studies in the area of marketing focusing on the effect of customer satisfaction on firm value and performance. Prior researches have documented theoretical and empirical evidence that customer satisfaction enhances return on investment of a firm and adds value to shareholders (Anderson et al., 1994, 2004). So, (2015) asserts that there is a positive relation between customer satisfaction and earnings quality which in turn, affects price informativeness of a firm stock (Cheng, Johnston and Zhou, 2012). Against this background, customer satisfaction can be viewed as a kind of external monitoring tool to guard against misbehavior of executives (CEO) in an organization. In today's business world where discipline and ethical behavior of executives (CEO) are the keys to safeguard the interest of shareholders. In the absence of an optimal agency (governance) contract between shareholders and the executives (CEO), a more effective firm monitoring mechanism needs to be in place in order to control agency costs between shareholders and executives of an organization. In this regard, customer satisfaction can act as an informal external monitoring pressure and performance measurement to reduce agency costs. I therefore follow the extant literature and extend their work by showing that customer satisfaction is correlated with such managerial operatives as CEO Pay Performance Sensitivity, CEO Pay Slice, CEO Turnover Performance Sensitivity, Corporate Cash Holdings and R&D Investment Expenditure of a firm. My idea of having customer satisfaction as an external monitoring tool is triggered by a substantial literature on agency conflicts emanated from Jensen and Meckling (1976). The objective of this research paper is to examine the relationship that customer satisfaction will have, if any, with various aspects of managerial operatives as those mentioned above. To begin with, this thesis conducts an empirical investigation to see if there is any association between customer satisfaction and CEO Pay Performance Sensitivity. This is followed by CEO Pay Slice, CEO Turnover Performance Sensitivity, Corporate Cash Holdings and finally R&D Investment Expenditure of a firm. Prior studies suggest that in countries with good corporate governance and proper external monitoring mechanism (e.g. investor protection law), price informativeness of a stock is improved contributing to an increase in stock returns. An increase in stock returns which will be reflected in firm performance will help improve CEO compensation (Basuroy, Gleason and Kannan, 2014), reduce CEO turnover (Defond and Hung, 2003), reduce improper spending in R&D investment (Chan, Chen, Hong and Wang, 2014), lessen excessive corporate cash holdings (Pinkowitz, Stulz and Williamson, 2006) and finally mitigate the pay gap between CEO and the team of top executives of an organization - "CEO pay slice" (Bebchuk, Cremers and Peyer, 2010). To help prove the importance of customer satisfaction towards an organization from the perspective of good corporate governance, the sample firms in the U.S. I have chosen is segregated into two sub-samples - one is with score of customer satisfaction maintained at "ACSI" (American Customer Satisfaction Index) and the other does not exist in ACSI. Consistent with this research, my findings reveal some empirical evidence that firms with score of customer satisfaction maintained at ACSI are positively correlated with stock price informativeness, CEO pay performance sensitivity, CEO turnover performance sensitivity, R&D spending as well as corporate cash holdings. I also find a negative association between firms with score of customer satisfaction and CEO pay slice. As a summary, results from my studies show that customer satisfaction can help improve firm value and reduce agency costs between shareholders and executives (CEO) of a firm. My findings suggest that there are benefits for organizations to adopt the measure of customer satisfaction as part of their KRI (Key Risk Indicator) for performance measurement. Thus, customer satisfaction does not only ensure good product and service quality, it can help improve firm value and protect shareholders interests, leading to a positive effect on corporate governance. |
| Rights: | All rights reserved |
| Access: | restricted access |
Files in This Item:
| File | Description | Size | Format | |
|---|---|---|---|---|
| 991022289505603411.pdf | For All Users (off-campus access for PolyU Staff & Students only) | 1.33 MB | Adobe PDF | View/Open |
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