Customer orientation and stock resilience during adversity periods

Abstract

Customer orientation reflects the organizational culture and climate that promote behaviors enabling the firm to create superior value for its customers. Using a textual measure of customer orientation ($Custor$) constructed from 10-K filings, we document a positive and economically significant relation between $Custor$ and stock returns in the financial crisis of 2008–2009 and the COVID-19 pandemic. High-$Custor$ firms outperform low-$Custor$ firms by 1.5% per month during the financial crisis and by 4.7% per month during the COVID-19 crisis. This positive $Custor$-returns relation is robust to different treatments and persists after accounting for factors that contribute to corporate resilience, such as $CSR$ activities. Our findings lend credence to the notion that customer orientation enhances a firm’s social capital, leading to improved operational performance during adverse periods, whilst our empirical evidence further supports that $Custor$ and $CSR$ represent distinct pathways for building trust. Consequently, firms that prioritize customer orientation experience greater resilience to negative shocks, especially during periods of low market confidence.