For decades, keeping both customers and employees happy seemed like a winning formula for any company looking to boost its stock price. Satisfied customers come back and spend more, and satisfied employees tend to deliver better service. Investors traditionally viewed companies excelling on both fronts as strong bets for the future.
But what if that logic no longer holds the way it once did? A recent study published in the Journal of the Academy of Marketing Science finds that in the current era of social media and app-based investing, unexpected simultaneous increases in both customer satisfaction and employee satisfaction are actually associated with lower stock returns. The finding flips a well-established assumption on its head and raises pointed questions about how companies should think about signaling their value to a changed class of investors.
A question born from a changing investment environment
The research was led by César Zamudio of Virginia Commonwealth University, along with Suyun Mah of Singapore Management University and Vanitha Swaminathan of the University of Pittsburgh. The team set out to revisit findings from an influential 2016 study by Groening, Mittal, and Zhang, which used data from 1994 to 2010 and found that when companies improved both their customer-related and employee-related performance, investors saw this as a positive signal about the company’s future. In that earlier period, balance was rewarded.
But major shifts have occurred since 2010. Social media exploded in scale, with billions of users generating a constant stream of commentary about companies. At the same time, platforms like Robinhood made stock trading accessible to a new wave of retail investors, meaning everyday individuals trading stocks from their phones rather than through traditional brokers. By 2023, retail investors held an estimated 52% of global assets under management, and their daily net trading flows hit $1.5 billion per day in the U.S. alone, up 84% from 2019.
Zamudio and his co-authors suspected that this transformed environment, flooded with information and populated by a new breed of investors drawn to growth potential and risk, would change the meaning of satisfaction signals. Their core question: In this new era, does simultaneously high customer and employee satisfaction still signal strength, or does it now communicate something different to the stock market?
How the researchers designed the investigation
The team assembled a dataset covering 110 publicly traded U.S. companies from 2011 to 2019, totaling 603 firm-year observations across 12 industry sectors. They pulled data from multiple sources. Customer satisfaction scores came from the American Customer Satisfaction Index (ACSI), a widely used yearly measure of how satisfied customers are with major companies. Employee satisfaction data came from Glassdoor, the online platform where current and former employees anonymously rate their employers on a five-star scale.
For social media visibility, the researchers counted the number of tweets mentioning each company on Twitter (now X) per year. Industry concentration, which measures how much a few dominant firms control a given industry, was calculated using sales data from Compustat, a financial database. The dependent variable, or the outcome the researchers were trying to explain, was “unanticipated stock returns.” This is a measure of how much a company’s stock performance deviated from what standard financial models would have predicted, essentially capturing the surprise element in stock price movements.
To isolate the unexpected component of satisfaction changes, the researchers used a statistical technique that strips out the predictable portion of each variable, leaving only the surprise, or “unanticipated,” change. They also employed controls for company size, total assets, and potential issues like endogeneity, which is the possibility that the variables being studied are influencing each other in ways that could distort conclusions. They addressed this using a technique called a control function approach, which statistically adjusts for these hidden influences.
What the data revealed
The central finding was clear: the combined, or “joint,” effect of unexpected increases in both customer satisfaction and employee satisfaction on stock returns was negative. In practical terms, when a company already had high customer satisfaction and then also saw its employee satisfaction rise unexpectedly, its stock returns were significantly lower compared to a company with high customer satisfaction but low employee satisfaction.
The reverse pattern, a company with high employee satisfaction but low customer satisfaction, did not produce the same benefit. This asymmetry suggests that investors in this era view customer satisfaction as a more immediately relevant, or “diagnostic,” signal of a company’s financial potential. Employee satisfaction, while valuable, may be seen as redundant information when customer satisfaction is already strong, or even as a sign that the company is spending more on internal resources than it needs to.
When the researchers looked at older data using the same methodology and data source from the 2016 study, they found that the original positive joint effect held during the earlier period of 2011 to 2015. But in the later period of 2016 to 2019, the effect flipped to negative. This timeline aligns with the widespread adoption of platforms like Robinhood, which officially launched in 2015, and the growing dominance of social media as an information source for investors.
Social media visibility amplifies the effect
Companies with higher social media visibility experienced an even stronger version of this negative joint effect. When a firm was highly visible on social media and had high employee satisfaction, increasing customer satisfaction was linked to steeper declines in unexpected stock returns. The researchers interpret this as follows: in a noisy social media environment overflowing with information, investors become more reliant on signals that help them cut through the clutter. Customer satisfaction serves that role more effectively than employee satisfaction.
Interestingly, higher social media visibility appeared to compensate for lower customer satisfaction to some extent, suggesting that investors may view a company’s active social media presence as a signal that it is working to improve its customer relationships.
Industry concentration matters too
The negative joint effect of customer and employee satisfaction on stock returns was also stronger in industries where a few large companies dominate, known as highly concentrated industries. In these settings, when a company had low employee satisfaction, increasing customer satisfaction was linked to significantly higher unexpected stock returns. The researchers suggest that in industries with limited competition and greater information gaps between firms and investors, customer satisfaction becomes an especially powerful signal of a firm’s direction and growth potential.
An experiment with real investors
To add another layer of evidence, the researchers conducted an online experiment with 232 individuals who had previous investing experience. Participants were asked to imagine they were using the Robinhood platform and evaluating a fictional company for investment. They were shown different combinations of high and low customer and employee satisfaction, along with simulated social media posts containing contradictory comments about the company, mimicking the noisy information environment of real social media.
The results showed that a company with high customer satisfaction and low employee satisfaction was perceived as equally attractive as one with both high customer and high employee satisfaction. Companies with low customer satisfaction, regardless of employee satisfaction levels, were rated significantly less attractive. This experimental evidence aligns with the patterns found in the stock market data.
What this could mean for business leaders
The findings carry several practical considerations for executives. First, the study suggests that companies struggling with customer satisfaction, which the ACSI reports is near a two-decade low, might still be able to generate shareholder value by investing in employee satisfaction and boosting their social media presence. In this scenario, being visible and engaged online may signal to investors that the company is actively working to improve.
Second, for companies that already enjoy high customer satisfaction, especially those in concentrated industries, the data suggests that simultaneously high employee satisfaction may not add value in the eyes of the stock market. This does not necessarily mean companies should make employees less satisfied. Rather, it implies that the stock market may interpret the combination as a sign that the company has already reached its growth ceiling and is spending heavily on internal resources without proportional external gains.
Third, the study found that non-monetary aspects of employee satisfaction, such as work-life balance and workplace culture, were more relevant to this dynamic than compensation and benefits. This suggests that investors may be paying closer attention to qualitative workplace factors rather than just pay levels.
There are important caveats to keep in mind. The study examines associations between variables rather than proving that one directly causes another. The data covers 2011 to 2019, and the investment environment continues to evolve. The researchers also note that their dataset includes 110 firms, and the findings may not generalize to all companies or industries. The social media measure was limited to Twitter activity and did not account for the content or sentiment of the posts.
The study also does not suggest that employee well-being is unimportant in any broader sense. The findings are specifically about how the stock market interprets certain signals in a particular informational environment. Long-term consequences for employee retention, innovation, and company culture may tell a very different story that stock returns alone do not capture.
Still, the research offers a reminder that the rules of the game can shift as information environments change. What once signaled a company’s strength to investors may now communicate something else entirely, and companies that fail to adapt their strategies accordingly could be leaving shareholder value on the table.
