The Impact Of Service Quality On Firms' Market Value

With the emergence and development of service economy,people have more and more requirement for service experience.Service quality competition has become an inevitable trend of enterprise competition.And the improvement of service quality is also a power way for company to emerge in the fierce competition.Service competition makes more and more enterprises begin to realize that it is difficult to create a lasting competitive advantage just by technical advantages,and now many companies have pin their hope on the quality of service provided to obtain competitive advantage.However,does effective service improvement add value to shareholders? How much profit it will bring to the company that we can expect? Which firm and industry factor increase or decrease the value of service improvement? All of these questions should be solved urgently for the managers.This study empirically estimates the impact of service improvement on the market value of the firm.We use a firm's receipt of a service award as a proxy for its service effectiveness.Based on data from 338 announcements of service awards given to the company between 2001 and 2015,we find that award announcements are associated with statistically significant positive stock market reactions.Our results show that the stock market reacts on the announcement day increased by 0.47% depending on the market model used to estimate the abnormal returns.The findings suggest that,firms with higher service ratio,smaller firm size,more industry competitiveness may result in much more positive market reaction.However,a firm's profit margin and growth prospect do not significantly affect the stock market reaction.And long term empirical result shows that enterprises will have positive abnormal return during enterprises implement an effective service management program(from two years before to one year after the winning of service awards).Moreover,the abnormal return on year after the winning of service awards is bigger.In summary,we document a positive association between effective service improvement and market value whether short or long term.Existing research has established relationship between service quality and variables such as price,word of mouth,profitability.However,little work has been done on estimating the impact of service quality improvement on the market value of the firm.Our article helps to fill this gap.There already exists a series of studies demonstrates that product quality is positive associate with the market value of the firms.We investigate the impact of service quality on the market value of the firms.We also sum up the results from previous studies on the value effect of general awards and find that the value of service award is comparable to other types of awards.Finally,our study documents what variables moderate the market reaction also helps managers understand which factors are important in the trade-off decisions to maximize shareholder value on service quality improvement.In the long term,enterprises adopt service quality management strategy will have a positive impact on the market value.The abnormal return will be greater after the implementation of the service quality strategy have obtained certain achievement.