Do Institutional Investors Use the Information in Customer Complaints? An Analysis of the Auto Industry

• In Event: Reception with Effective Learning Strategies Displays

Abstract

In this study we investigate whether sophisticated investors appear to utilize the information in customer complaints in their investment decisions. We examine institutional investor trading activity around the announcement of recalls and find that, in general, these sophisticated investors do not appear to utilize the customer complaints to inform their trades prior to recall announcements. We find that customer complaints are positively associated with abnormal net selling activity after recall announcements for large institutional investors. Small institutional investors appear to be abnormal net buyers rather than sellers when customer complaints are high in both pre-and post-recall announcement periods. While institutional investors are generally viewed as sophisticated investors, our results suggest that they fail to incorporate the negative implications of customer complaints for future financial performance into their trading decisions.

Authors

• Abdullah Kumas, University of Richmond

• Sami Keskek, University of Arkansas-Fayetteville

• Marshall A Geiger, University of Richmond