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How Does Main Street Drive Wall Street?

How Does Main Street Drive Wall Street?

Udit Sharma and Xiaoxu Wu

Journal of Marketing Research Scholarly Insights are produced in partnership with the AMA Doctoral Students SIG – a shared interest network for Marketing PhD students across the world.

Customer satisfaction continues to be one of the most deployed metrics by marketing executives to measure the quality of their customer-firm relationships. Extant research in marketing has broadly reached a consensus regarding the positive effects of customer satisfaction on a variety of customer mindset-based (e.g., attitudinal loyalty), product market-based (e.g., revenue), and accounting-based (e.g., profitability) firm performance outcomes. However, research findings for the effects of customer satisfaction on financial market-based outcomes such as abnormal stock returns are mixed and inconclusive. Furthermore, relatively little is known about the mechanisms through which customer satisfaction affects abnormal stock returns. This is an important issue because executives are answerable to the investors and must know whether and how investments in customer satisfaction initiatives and processes would generate above-market returns for investors.

Interestingly, a recent article by Ashwin Malshe, Anatoli Colicev, and Vikas Mittal tackles this important issue by introducing a novel mediating mechanism of short interest, a measure of short seller activity. The authors compile longitudinal data from 273 United States based firms from various public and proprietary sources and undertake a rigorous examination of the effects of unexpected changes in customer satisfaction and dissatisfaction on abnormal stock returns. They find that an unexpected change in customer satisfaction and dissatisfaction both significantly impact abnormal stock returns, and the effects are fully mediated through short interest. The results also indicate that there are asymmetric effects of customer satisfaction and dissatisfaction on short interest, and customer dissatisfaction is more consequential for firm’s financial market-based performance. The authors also identify two conditions when such effects of customer satisfaction are more relevant for firms. Their findings indicate that such effects are more relevant for firms with lower capital intensity and firms that operate in industries with lower competitive intensity. This is because firms with lower capital intensity have higher flexibility to leverage growth opportunities associated with an increase in customer satisfaction, and customer satisfaction as a resource is less imitable by competitors in industries with lower competitive intensity.


This study’s findings offer valuable guidance for executives for correctly assessing the value relevance of customer satisfaction. Executives would benefit from incorporating short interest of their firm’s stocks to assess the impact of customer satisfaction on abnormal stock returns. This would prevent potential underinvestment in customer satisfaction improvement efforts, reducing the likelihood of undesirable customer outcomes such as customer defections and negative word-of-mouth. Considering the evidence for more pronounced impact of customer dissatisfaction, executives would benefit from making investments targeted at mitigating customer dissatisfaction followed by or in addition to investments targeted at increasing customer satisfaction. Previous research also shows that mitigating dissatisfaction is not only cheaper but also more effective for customer retention. Overall, the findings for the significant effect of customer satisfaction on abnormal stock returns provide further justification for firms to continue investing in customer satisfaction for term firm performance benefits.

Considering such substantive implications and recent events that have heightened public interest in short selling, we reached out to the authors to know more about their inspiration to study customer satisfaction and gain additional insights about their study.

Q: Your paper introduces a novel mediating mechanism of short interest in the relationship between customer satisfaction and abnormal returns. What inspired you to study from the short seller perspective, and can you give us some insight into how that idea came to be and evolved?

A: The research idea started with an observation that the short-term impact of customer satisfaction on abnormal stock returns is essentially zero, even though the long-term positive impact has been supported by previous research. This pattern provided evidence that stock market investors likely overlook changes in customer satisfaction in the short term. However, there are some sophisticated investors in the stock market who understand the value relevance of the consumer mind-set metrics such as customer satisfaction. In 2017, when the research project was started, the financial press had begun to focus on the use of alternative data by hedge funds and short selling accounted for an estimated 25%-30% of trading volume on NYSE and NASDAQ. The focus on short sellers is important because short selling is risky and needs skills and sophistication to profit, indicating that short sellers have higher motivation, ability, and opportunities to detect, process, and utilize information advantage from metrics such as customer satisfaction.

Q: Could you please share with us some insight about the mediating roles of different investors’ behavior in the relationship between marketing assets and stock returns? Is it important for managers and researchers to treat investors differently?

A: Executives and researchers will benefit from understanding the different motivations and goals of different investors. Long-term investors such as pension funds and mutual funds are likely to have an amenable relationship with a company’s top management team and tend to be dependent on the management for information. Activist investors, however, often take an adversarial stance against the incumbent management but may install new management that works with the activist investors. Finally, most, if not all, managers dislike short sellers because short sellers hope to benefit from a decline in the firm’s stock price. This makes short sellers highly independent from a firm’s management because they have opposing goals. As such, short sellers have a strong incentive to be objective while evaluating the firm’s operations and strategies.

Q: What are the main takeaways you hope your audience (marketing practitioners, investors, and/or marketing researchers) will take from this paper?

A: For investors, this article presents new evidence that customer satisfaction and dissatisfaction can affect stock prices even in the short term. It will serve investors well to pay attention to the changes in these consumer mindset metrics in order to construct, balance, or rebalance their stock portfolio. For marketing researchers, the authors emphasize on the importance of understanding and examining the effects of customer satisfaction and customer dissatisfaction separately because many important strategic outcomes are likely to differ based on customer satisfaction and dissatisfaction. The starkly stronger asymmetric effect of dissatisfaction than satisfaction suggest that researchers are missing out on nuanced relationships by ignoring the asymmetry. Strategy research should examine how and when companies can benefit more from dissatisfaction mitigation efforts rather than satisfaction maximization efforts.

Q: The marketing–finance interface is an important research field in marketing. Could you please share with us some general thoughts about the field or recommendations for future research?

A: The marketing-finance literature will benefit from adopting machine learning (ML) models. Advances in computer vision and natural language processing have made it relatively easy to use unstructured data such as in company tweets, social media posts of multiple stakeholders, websites, and other forms of communication by them.

Read the full article: Ashwin Malshe, Anatoli Colicev, and Vikas Mittal (2020). “How Main Street Drives Wall Street: Customer (Dis) satisfaction, Short Sellers, and Abnormal Returns.” Journal of Marketing Research, 57(6), 1055-1075.

Udit Sharma is a marketing doctoral student at the Eli Broad College of Business at Michigan State University.

Xiaoxu Wu is a marketing doctoral student at the Eli Broad College of Business at Michigan State University.