Evaluating the Impact of Complaints on Firms’ Idiosyncratic Risk: The Roles of Valance and Channel

Abstract

Firms increasingly rely on the third-party platforms to manage customer complaints. In this article, we explore the impact of complaints on firms’ idiosyncratic risk by considering both the valence and channel characteristics of complaints. Through textual analysis, complaints are categorized into four types based on the intersection of two dimensions: the valence (mild or severe) of the complaint and the channel (firm or platform) through which the complaint is lodged. Empirical analysis is conducted to test the hypotheses. The results reveal that firms’ idiosyncratic risk rises after severe complaints but decreases after mild complaints. Moreover, while mild platform-channel complaints increase risk, severe platform-channel complaints reduce risk. This study highlights the disparate impacts of the channel and valence of complaints on manufacturing and service firms. This research contributes to the literature on online complaints and the marketing–finance interface, offering valuable insights for firms seeking to mitigate their idiosyncratic risk through complaint management strategies.