A Relationship between the Financial Consultants’ Service Quality and Customer Trust after Financial Tsunami

International Research Journal of Finance and Economics ISSN 1450-2887 Issue 36 (2010) © EuroJournals Publishing, Inc. 2010 A Relationship between the Financial Consultants’ Service Quality and Customer Trust after Financial Tsunami Yenhui Ouyang Department of Finance and Banking, Kun Shan University, Tainan, Taiwan E-mail: ouyang@ksu.edu.tw Tel: 886-952236222 Abstract Under the weight of the global financial crisis, Taiwan has been unable to escape from this disaster. Investors have already responded to the serious financial confidence crisis and are now investing conservatively on investment. This research took the investors as our empirical investors to discuss the cognition of service quality. We use Confirmatory Factor Analysis (CFA) and the Structural Equation Model (SEM) to analyze the casual relationships between service quality, customer trust, customer satisfaction, and customer loyalty. This paper also examined the mediator effects of customer satisfaction and trust. The findings discovered that although the service quality and the customer satisfaction did not have a direct effect on “customer loyalty”, they did have an indirect influence on “customer loyalty” via “the trust relations” and “the customer degree of satisfaction”. This confirmed the mediator effects of “trust relations” and “customer satisfaction”. Therefore, this research suggests that the financial consultants should understand what the demands of customers are and which factors the customer care about most after the “Financial Tsunami”, and furthermore, to design and suggest suitable financial commodities to maintain a good image of an enterprise. Thus, the customer will develop deeper and more permanent trust, and maintain a lasting business relationship. Keywords: Financial Tsunami, Service Quality, Trust, Customer Satisfaction, Customer Loyalty 1. Introduction To the majority of the developed countries, the “financial tsunami” not only affects their economic order but also misleads their economies to an unprecedented deficit in 2008. In order to solve this unprecedented storm, the G-20 meeting of leaders proposed how to promote economically effective strategies at the beginning of April in 2009. These countries coordinated each other in order to rally an international finance operation system. Besides England, America and so on, many developed and developing countries also participated in the conference, which demonstrates an important strength also guiding the global economy toward normalization. This global financial tsunami has not only resulted in the investor losing wealth, but has also caused unemployment rates to be more serious day by day. The confidence of investors has collapsed completely. For example, because the incomes of unemployed investors have became more unstable, some investors cannot afford to meet their needs of daily life, such as car loans and mortgages. There have also been some violations of financial commodities, which have created more complicated social International Research Journal of Finance and Economics - Issue 36 (2010) 76 problems. Along with the increasing finance problems of investment and enormous losses, investors have started to suspect the suggestions, strategies, and commodities of investments offered by financial consultants. These investors were deaf to the suggestions of financial knowledge by not evaluating each investment themselves and thus formed another crisis of investment unconsciously. Most financial consultants are specially trained, however, they focus on the business requirements of the company, so they didn’t expose and explain the risks sufficiently. The investors also had not appraised how much risk they were undertaking, while the sources of capital to purchase the financial commodities, like structure notes, surpassed the risk they could bear. Additionally, individual investors suffered a great loss, the managers of the banking, investment banking, security companies, and the retirement funds were eager to invest large amounts of capital in derivative financial commodities. The financial institutions didn’t verify carefully the risk and effectively made the disposition of financial commodities. They even expanded the extents of investment and integrated these risky commodities into their portfolios of investment, thus causing a large amount of losses and harming the shareholders’ rights and interests. All these events did not have control schemes, causing the loss to expand unceasingly and initiate a destabilize society. Moreover, the financial institutions were too optimistic to appraise the investments sufficiently. As a result of the over expansion and development of the developing countries in growth rate and expense ability, the economic indicators of the developing countries presented the pseudo-phenomena of a superheated economy, and causing an economical bubble being created. The economy crumbled away gradually, even if the developing countries had great potential. Therefore, this article suggests the financial institutions and financial superintendents must formulate certain clauses under government surveillance to protect and maintain the rights and interests of investors. Suffering from this financial tsunami, investors may naturally have shaken confidence in the trust of financial consultants. They are unable to immediately trust the suggestions of the financial professionals, even though most investors do not specialize in the knowledge of finance. In consequence of this vicious cycle, the boundary of the financial tsunami is expanding day by day as most investors are now more conservative in their strategies of investment. Thus, this article endeavors to explore whether the investor can still trust the expertise of financial consultants’ service quality despite their loss in investments. Its purpose of this paper is to explore some of the pertinent conceptual and empirical issues involved in the development of industry-specific measures of service quality. It is important to discuss how this issue will influence on the management of the banking sector and contains practical research value. Consequently, this study is a useful way of understanding the impact of customer loyalty. Answering this question as proposed will fulfill the following objectives: 1) To examine service quality in the context of multi-variables. 2) To understand how trust was a critical factor of customer satisfaction and customer loyalty. 3) To understand how the effect of customer satisfaction impacts on customer loyalty. 4) To find the significant direct and indirect relationship between the constructs. The paper is organized in the following sections. The next section examines the relevant literature, and is followed by the research objectives and an overview of the core methodology, SEM. Section 4 discusses the findings from the research, and finally, conclusions of the paper and managerial implications are noted. 2. Literature 2.1. Service Quality Although banks the world over offer similar kinds of services (Lim & Tang 2000), quickly matching their competitors’ innovations, customers can perceive differences in the quality of service. A general definition is “the totality of features and characteristics of a product or service that bears on its ability to satisfy stated or implied needs” (Johnson and Winchell, 1988). Service quality is important to all 77 International Research Journal of Finance and Economics - Issue 36 (2010) organizations as it is “regarded as a driver of corporate marketing and financial performance” (Buttle, 1996). Various models have been developed for measuring perceptions of service quality (Gro¨nroos, 1983; 1990; Parasuraman et al., 1985; 1988;, 1991; Stafford, 1996; Bahia and Nantel, 2000; Aldlaigan and Buttle, 2002). Service quality has been recognized as a key strategic issue for organizations operating in service sectors (Lewis and Mitchell, 1990). The banks believe customers will be loyal if they receive greater value than from competitors (Dawes & Swailes, 1999). Therefore, banks should focus on improving service quality as a core competitive strategy. Previous research has indicated that high levels of customer satisfaction are related to the service quality provided through customer interactions (van der Wiele et al., 2002; Vilares and Coehlo, 2003). The service profit chain (Heskett et al., 1994) specifically identifies a relationship between employee satisfaction, service quality and customer satisfaction. Research investigating these relationships has subsequently generated support for this model (Loveman, 1998; Anderson and Mittal, 2000; Voss et al., 2004). Frei et al. (1997) also suggested that processes have an important role to play in driving service quality and customer satisfaction. Banks with good, consistent processes enjoy higher financial performance. More specilically, service quality affects the repurchase intentions of customers (Ghobadian et al., 1994). Many companies are focusing upon service quality improvement issues in order to drive high levels of customer satisfaction. Parasuraman et al. (1985) also recognized the significance of staff satisfaction and service quality as drivers of customer satisfaction in developing their SERVQUAL measurement tool. Heskett et al. (1994) proposed a positive linear relationship between staff satisfaction, service quality and customer satisfaction leading, ultimately, to profitability. Thus the following hypothesis was tested: H1: Service quality has a positive effect on customer satisfaction (see Figure 1). Bahia and Nantel (2000) consequently developed a specific new scale for perceived service quality in retail banking. This Bank Service Quality (BSQ) model is an extension of the original 10 dimensions of the model of Parasuraman et al.(1985). In addition, Guo et al.(2008) constructed a measurement instrument to capture service quality in the Chinese corporate banking market. Factor analysis identifies that service quality in Chinese corporate banking is measured by a nested model, consisting of two higher-order constructs (i.e. functional quality and technical quality) and four lower- order dimensions (i.e. reliability, human capital, technology and communication). Thus the following hypothesis was tested: H2: Service quality has a positive effect on trust (see Figure 1). According to the other studies, customer satisfaction and service quality have been consider as two distinct, though highly correlated, constructs (Bansal and Taylor, 1997; Dabholkar et al., 2000). In marketing literature, several studies have found positive relationships of service quality and customer satisfaction with customer behavioral intentions (Anderson and Sullivan, 1993; Parasuraman et al., 1988). Further, studies have also shown that customer satisfaction mediates the effect of service quality on behavioral intentions (Gotlieb et al., 1994). It is recommended that customer satisfaction should be measured separately from service quality in order to understand how customers evaluate service performance (Dabholkar et al., 2000). Thus the following hypothesis was tested: H3: Service quality has a positive effect on customer loyalty (see Figure 1). 2.2. Trust Various forms of trust have been identified in the literature. Moorman et al. (1992) define trust as “a willingness to rely on an exchange partner in whom one has confidence.” In prior research, trust has been conceptualized in several ways; researchers have long acknowledged this confusion (McKnight, Cummings, Chervany, 1998; McKnight et al. 2002). In other words, trust also can be defined as “the belief in the integrity, honesty and the reliability of another person” (Dwyer and Tanner, 2002). No matter what definition is used, trust is a key element for relationship success and tends to be related to a number of elements such as competitive advantage and satisfaction (Ratnasingam and Pavlou, 2003). Chiou (2002) found that perceived trust had direct and positive impacts on the overall satisfaction and International Research Journal of Finance and Economics - Issue 36 (2010) 78 loyalty of customers. Because we also expected these variables and relationships to apply in customer satisfaction with financial service, we hypothesized that: H4: Trust has a positive effect on customer satisfaction(see Figure 1). Customer satisfaction was therefore considered to be a mediating variable between trust and customer loyalty. In addition, most researchers agreed that trusting beliefs directly influenced trusting intentions (e.g., repurchase intentions). Chaoprasert and Elsey (2004) discovered that a bank’s staff plays a key role in mediating between the driving force of systems, such as new technology, and the need to retain customer loyalty by providing a good quality personal service across the counter in the case of the Thai banks. Thus the following hypothesis was tested: H5: A higher level of trust leads to a higher level of customer loyalty(see Figure 1). 2.3. Customer Satisfaction Satisfaction is a consumer’s purchase perception of the difference between the expected and received value of a transaction. Zeithaml and Bitner (2000) defined customer satisfaction as the “customers’ evaluation of a product or service in terms of whether that product or service has met their needs and expectations”. Satisfaction is therefore a consumer’s post-purchase evaluation and affective response to the overall product or service experience. A substantial amount of research has concluded that satisfaction is an important determinant of customer loyalty (Bearden and Teel, 1983; Cronin and Taylor, 1992; Caruana, 2002; Dick and Basu, 1994; Oliva et al., 1992; Selnes, 1993). Also, Oliver (1999) defined customer loyalty as “a deeply held commitment to re-buy or re-patronize a preferred product/service consistently in the future, thereby causing repetitive same-brand or same brand-set purchasing, despite situational influences and marketing efforts have the potential to cause switching behavior”. The satisfaction/dissatisfaction occurring through a matching or mismatching of expectations and perceived performance is considered to act as an antecedent to loyalty behavior (Bitner, 1990). In a service context, Asuncion et al. (2004) concluded that customer satisfaction was the key factor affecting service loyalty. Oliver (1999) suggested that satisfaction is a pleasurable fulfillment and that for satisfaction to affect loyalty, cumulative satisfaction (an affective response) was required so each and every satisfaction episode gets blended or becomes aggregated. Zairi (2000) found that satisfied customers possibly share their experiences with five or six people while dissatisfied clients might inform another ten. Since customer loyalty responses are conative in nature representing levels of customer commitment towards the service provider (Chiou et al. 2002; Oliver, 1997, 1999), we also expect satisfaction to be related to customer loyalty. We therefore proposed that: H6: Customer satisfaction has a positive effect on customer loyalty(see Figure 1). As noted in earlier literature, we think that the banking sector must understand what the demands of the customer are and which factors the customer cares about after the “Financial Tsunami”, and, furthermore, to design and suggest suitable financial commodities to reduce the turnover of customers, and thereby forming a superior-quality cycle. Consequently, customers will create positive trust and satisfaction and retain them over the long run. According to the aforementioned literature, we discuss the casual relationships of these variables and formed the following research framework (see Figure 1). 79 International Research Journal of Finance and Economics - Issue 36 (2010) Figure 1: Hypothesized relationships Trust Service Quality Customer LoyaltyCustomer Satisfaction H1 H5 H6 H2 H4 H3 3. Methodology According to the need of each research constructs and hypotheses, Statistical Package for Social Science (SPSS 15.0) and Amos 7.0 were used to code and analyze the data. Pre-test of the questionnaire were conducted involving 30 respondents. The questionnaire was also sent to the bank’s managers and clients. As a result of the feedback received from the pretesting and the respondents’ comments, the phrasing of some items was clarified and the instructions for filling in the questionnaire modified in order to increase the validity of the survey instrument. Questionnaires designed to be self- administered were sent to all 500 clients. All constructs adapted scales from the relevant studies and this study gauge the respondents by reporting the four factors of service quality, trust relation, customer satisfaction, and customer loyalty on a seven-point Likert scale with anchors on strongly disagree (1) and strongly agree (7). The period of survey was from January, 2009 to March, 2009 and took the investors who had exchanged with the financial consultants as the sampling objectives. The summated scales were formulated by means of Exploratory Factor Analysis (EFA), and Cronbach’s alpha was used to assess their reliability. As there was substantial scale development and adaption, all the initial scales were subjected to EFA. The correlations between the main constructs are presented. They are all significant at the one-percent level and therefore the summated scales are suitable for the regression paths analysis. Confirmatory Factor Analysis (CFA) and Structural Equation Model (SEM) were used to test the hypotheses concerning the linkage between service quality, trust, customer satisfaction and loyalty and the mediatory effects of trust. 4. Results A total of 237 usable questionnaires were returned, for a response rate of 47.4%. In Exploratory Factor Analysis, all the loadings of items are below 0.5, and substantial cross-factor were eliminated from the final scale. After removing these variables (α<0.5), all scale items showed good reliability. Table 1 shows the items that remained for modeling the structural equation and also summarized the result of a reliability analysis of the variables. Cronbach’s α were greater than 0.6; and factor loadings ranged from 0.530 to 0.842, which is well above the minimum of 0.35 for a sample of 244 (Hair et al., 2006). International Research Journal of Finance and Economics - Issue 36 (2010) 80 Moreover, all of the measures of constructs had been used in past studies, and have thus been validated. 4.1. Measurement Model A confirmatory factor analysis was conducted to test the measurement model. Six common model-fit measurements were used to assess the model’s fit. As shown in Table 1, most of the model-fit indices exceed the respective common acceptance levels suggested by previous research, demonstrating that the measurement model exhibited a good fit with the data collected. Therefore, we proceeded to evaluate the psychometric properties of the measurement model in terms of reliability, convergent validity, and discriminant validity. Table 1: Confirmatory factor analysis(CFA)fitting Indices Fitting Indices Service Quality Trust Customer Satisfaction Customer Loyalty CMIN(χ 2) 45.656 4.86 1.692 10.459 DF 17 9 2 5 CMIN(χ 2)/DF<3 2.69 0.54 0.864 2.09 GFI>0.90 0.957 0.993 0.997 0.984 RMSEA<0.08 0.085 0.000 0.000 0.068 AGFI>0.90 0.909 0.984 0.983 0.952 NFI>0.90 0.937 0.992 0.995 0.977 CFI>0.90 0.959 1.000 1.000 0.988 Table 2: Reliability and Factor