Firm Actions, User Engagement, and Firm Performance: A Mediated Model with Evidences from Internet Service Firms

ABSTRACT As firms’ essential stakeholder, users can be evoked by the information from firms’ action. Users interpret relevant cues from the information and respond to it through engagement behavior such as online word of mouth through social media. Drawing on the information processing theory, this study develops a model of how user engagement behavior mediates the relationship between a firm’s actions and performance. The theoretical model is tested in two empirical studies. One uses actions of six representative Internet service firms and their users’ online word-of-mouth behavior over a 50-month period. The second is a two-stage controlled laboratory experiment designed to establish causal linkages between firm actions and user engagement. The study provides support for its hypotheses and offers several key findings. First, the firm’s actions influence user engagement behavior. Specifically, when a firm launches a larger number of actions, users are engaged in a higher volume of activities and deeper activities. When a firm employs actions that are simpler and easier to understand, users are engaged in deeper activities but not necessarily a larger volume of activities. Second, user engagement is a missing link between a firm’s actions and performance. Specifically, engagement depth positively mediates the effects of both action volume and action simplicity on performance. By contrast, engagement breadth positively mediates the effect of action volume but not the effect of action simplicity on performance. Collectively, the study contributes to a clearer understanding of the role of users in firms’ actions and provides key insights regarding how firms benefit from user engagement.