Service excellence and market value of a firm: an empirical investigation of winning service awards and stock market reaction

Abstract

Service excellence is viewed as firms providing high levels of service quality that in turn generate high customer satisfaction. Studies have empirically linked service excellence and firm performance. We add to the understanding of this link by examining the association between delivering service excellence and shareholder value. Delivering service excellence is proxied by announcements of winning service awards and shareholder value is assessed by the stock market reaction to such announcements. Our empirical analyses are based on a sample of 316 announcements by firms winning service awards between 2001 and 2016. We find that the average market reaction to winning service awards is 0.42%. The market reaction depends both on prior performance and firm size. Growth prospects of firms is not a significant factor in determining the market reaction. Interestingly, we find that firms operating in less competitive industries have a higher market reaction compared to firms operating in more competitive industries. We also find that winning a service award is associated with subsequent improvements in operating performance measured as return on assets (ROA), return on sales (ROS) and total cost over sales (TCOS).