Linking customer satisfaction with financial performance: an empirical study of Scandinavian banks

Abstract

It is generally assumed that increased satisfaction levels lead to improved financial performance. However, this assumed relationship is, by and large, still to be proven in a more general setting, especially with respect to European sectors and industries. This research aims to identify empirically relationships between customer loyalty and satisfaction and profitability measured as ROA, ROE, profit margin and operating income, as well as market indicators (market capitalisation and Tobin’s q). The research sample is made up of nine Scandinavian banks observed on an annual basis between 2004 and 2014. We can confirm that customer satisfaction and loyalty have a significant positive influence on banks’ profitability and can be considered as a predictor for future profitability as the satisfaction index of the preceding year influences the next year’s financial performance. We are also able to confirm that there is a positive link between the customer satisfaction of the preceding year and market indicators of the current year. These results are important for both decision makers in banks and investors. They mean that decision makers and investors can take the bank’s level and trend in customer satisfaction to make assumptions on its future profitability and market performance.

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