Consumer Complaints and Company Market Value

Abstract

Consumer complaints affect company market value and common sense suggests that a negative impact is expected. However, do complaints always negatively impact company market value? We hypothesize in this study that complaints may have a non-linear effect on market value. Positive (e.g. avoiding high costs to solve complaints) and negative (e.g. speedy and intense diffusion) tradeoffs may occur given the level of complaints. To test our non-linear hypothesis, a panel data was collected from cell phone service providers from 2005 to 2013. The results supported our tradeoff rationale. Low levels of complaints allow for companies to increase market value, while high levels of complaints cause increasing harm to market value. The sample, model and period considered in this study, indicates a level of 0.49 complaints per thousand consumers as the threshold for a shift in tradeoffs. The effects on market value become increasingly negative when trying to make reductions to move below this level, due to negative tradeoffs.