The Signal of Satisfaction: Do Boards Incentivize or Fire Overconfident CEOs Based on Customer Satisfaction?
(A2026-134142)

AUTHORS

Simon Schulten, University of Cologne; Boas Bamberger, University of Cologne

ABSTRACT

Corporate boards govern CEOs through incentive and firing decisions, yet customer satisfaction rarely factors into either. We study how the availability of independent customer satisfaction information alters these decisions. Exploiting staggered firm inclusion in the American Customer Satisfaction Index as a natural experiment, we show that making customer satisfaction contractible significantly changes board governance. For non-overconfident CEOs, inclusion reduces bonuses and increases dismissal risk. For overconfident CEOs, bonuses rise and dismissal risk falls, indicating boards reward them for taking ownership of newly observable customer metrics. These results provide the first causal evidence that third-party customer satisfaction rankings reshape incentive contracts and that managerial overconfidence critically moderates boards’ responses.