Do Disclosures of Customer Metrics Lower Investors’ and Analysts’ Uncertainty but Hurt Firm Performance?

Emanuel Bayer, Kapil R. Tuli, Bernd Skiera
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Key Takeaways
  • ​Examining disclosures by firms in two industries, authors find that forward-looking disclosures of customer metrics lower the uncertainty faced by investors and analysts.
  • Backward-looking disclosures, however, do not have any effects on the uncertainty faced by analysts and investors.
  • In contrast to arguments presented by managers, neither forward- nor backward-looking disclosures of customer metrics have a negative impact on future cash flows of firms
  • Post-hoc analyses show that the results are driven by the forward-looking disclosures of customer outcome metrics (e.g., customer satisfaction, customer retention) rather than metrics related to firm actions targetted at customers (e.g., marketing spending and advertising spending).

​Article Snapshot: Executive Summaries from
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  • the Journal of Marketing Research
     

    Forward-looking disclosures of customer metrics lower the investors' and analysts' uncertainty but do not have a negative impact on future cash-flows of the firm.

    Forward-looking disclosures of customer metrics are negatively associated with investors' uncertainty in the Telecommunications and Airline industy, and with analysts' uncertainty in the Telecommunications industry.

    Results do not support the managerial thesis that such disclosures have a negative impact of future cash flows.


    Research

    A number of marketing scholars have called for firms to provide more disclosures of customer metrics as they could lower investor and analyst uncertainty about firm performance. Managers, however, argue that such disclosures are unlikely to provide help investors or analysts, and could hurt future cash-flows by providing valuable information to competitors. Accordingly, this study synthesizes work in marketing and accounting to examine the extent of and types of disclosures of customer metrics, and their impact on investor and analyst uncertainty and future cash-flows of firms.

     

    Methods

    We analyzed the annual reports of firms in the Telecommunications and in the Airline industry. We coded which customer metrics the firms disclosed and used a 3SLS model to examine the effects of backward- and forward-looking disclosures of customer metrics on investors' and analysts' uncertainty, as well as the future cash-flows of firms.

    Findings

    Forward-looking disclosures of customer metrics are negatively associated with investors' uncertainty in the Telecommunications and Airline industy, and with analysts' uncertainty in the Telecommunications industry. In both industries, results do not support the managerial thesis that such disclosures have a negative impact of future cash flows.

    Implications

    A direct implication is that senior managers such as the CEO and the CMO should consider disclosing forward-looking customer metrics. The beneficial impact of forward-looking disclosures, combined with the fact that we do not find any negative effects of these disclosures on future cash-flows, presents initial empirical evidence for FASB to re-consider its 2004 decision to terminate its project encouraging disclosures of customer information by firms. As we analyzed Telecommunication and Airline firms, these two industries may benefit in particular from our findings.

    Questions for the Classroom

    • Should firms disclose information about their customer metrics in annual reports to shareholders?
    • If yes, which customer metrics should firms disclose?
    • What are the effects of disclosures of customer metrics?

    Article Citations

    Emanuel Bayer, Kapil R. Tuli, and Bernd Skiera (2017) Do Disclosures of Customer Metrics Lower Investors’ and Analysts’ Uncertainty but Hurt Firm Performance?. Journal of Marketing Research: April 2017, Vol. 54, No. 2, pp. 239-259.

    Doi: http://dx.doi.org/10.1509/jmr.14.0028
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    Author Bio:

     
    Emanuel Bayer, Kapil R. Tuli, Bernd Skiera
    Emanuel Bayer is a Postdoctoral Researcher, Goethe University Frankfurt. Kapil R. Tuli is Associate Professor of Marketing, Lee Kong Chian School of Business, Singapore Management University. Bernd Skiera is Chaired Professor of Marketing, Goethe University Frankfurt.
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