Stock Market Reaction to Unexpected Growth in Marketing Expenditure: Negative for Sales Force, Contingent on Spending Level for Advertising

Published on Jul 1, 2011in Journal of Marketing
· DOI :10.1509/JMKG.75.4.68
Min Chung Kim1
Estimated H-index: 1
(PolyU: Hong Kong Polytechnic University),
Leigh McAlister27
Estimated H-index: 27
(University of Texas at Austin)
Abstract Because firms do not publicly report marketing expenditures, most studies of the link between firm value and marketing consider advertising (which is publicly reported for many firms) a proxy for marketing. The authors extend those studies in two ways. First, they broaden the proxy for marketing by considering both advertising and sales force. Second, they offer an explanation for the fact that some studies linking advertising to firm value find a positive relationship, whereas others find a negative relationship. The accounting literature suggests that the link to firm value for both unexpected growth in sales force expenditures and unexpected growth in advertising expenditures should be negative. The authors confirm the hypothesized accounting relationship for sales force expenditures but find a contingent relationship for advertising expenditures. Firm value and unexpected growth in advertising expenditures are negatively related for firms that advertise below the advertising response threshol...
📖 Papers frequently viewed together
35 Citations
282 Citations
1,786 Citations
In this paper, we identify sales and marketing activities, and common impediments to their integration. We then discuss the concept of sales-marketing integration, and distinguish it from related concepts such as involvement and communication. Following this, we discuss approaches businesses can use to improve sales-marketing integration as well as their potential costs and drawbacks. The paper concludes with a set of propositions identifying the conditions under which sales-marketing integratio...
185 CitationsSource
#1Xueming Luo (UTA: University of Texas at Arlington)H-Index: 53
#2Christian Homburg (University of Melbourne)H-Index: 84
Last. Jan Wieseke (University of Marburg)H-Index: 24
view all 3 authors...
Abstract Although managers are interested in the financial value of customers and researchers have pointed out the importance of stock analysts who advise investors, no studies to date have explored the implications of customer satisfaction for analyst stock recommendations. Using a large-scale longitudinal data set, the authors find that positive changes in customer satisfaction not only improve analyst recommendations but also lower dispersion in those recommendations for the firm. These effec...
130 CitationsSource
#1Kenji Adachi (UMN: University of Minnesota)H-Index: 5
#2Donald J. Liu (UMN: University of Minnesota)H-Index: 12
Adopting a spline threshold estimation procedure, this article investigates the threshold effects on demand of generic fluid milk advertising. A quarterly fluid milk demand equation with unknown thresholds is estimated. The results support the existence of a minimum threshold below which advertising has no impact on sales, and an upper threshold beyond which the law of diminishing returns dictates. Advertising is also found to have the effect of rendering fluid milk demand less elastic with resp...
9 CitationsSource
#1Amit Joshi (College of Business Administration)H-Index: 6
#2Dominique M. Hanssens (UCLA: University of California, Los Angeles)H-Index: 46
Abstract Marketing decision makers are increasingly aware of the importance of shareholder value maximization, which calls for an evaluation of the long-term effects of their actions on product-market response and investor response. However, the marketing literature to date has focused on the sales or profit response of marketing actions, and the goals of marketing have traditionally been formulated from a customer perspective. Recently, there have been a few studies of the long-term investor re...
282 CitationsSource
#1Dominique M. Hanssens (UCLA: University of California, Los Angeles)H-Index: 46
#2Roland T. Rust (UMD: University of Maryland, College Park)H-Index: 77
Last. Rajendra K. Srivastava (Singapore Management University)H-Index: 49
view all 3 authors...
Stock prices are based in large part on corporate financial statements, augmented by analysis by stock analysts. The ultimate goal of any marketing expenditure should be to increase the value of the firm, but the road from marketing expenditure to stock price is usually circuitous. This is because marketing's path to financial impact is through revenues, and the road to revenues runs through the customer. Typically, a long chain of effects is involved to account for the impact of a marketing exp...
108 CitationsSource
#1Robert JacobsonH-Index: 30
#2Natalie Mizik (Columbia University)H-Index: 19
We appreciate the opportunity to respond to the commentaries and additional analyses by Fornell et al. [Fornell, C., S. Mithas, F. V. Morgeson III. 2009a. The economic and statistical significance of stock returns on customer satisfaction. Marketing Sci. 28(5) 820--825] and Ittner et al. [Ittner, C., D. Larcker, D. Taylor. 2009. The stock market's pricing of customer satisfaction. Marketing Sci.25(5) 826--835]. Both studies have multiple theoretical and econometric limitations that challenge the...
25 CitationsSource
#1Andrea Fosfuri (Charles III University of Madrid)H-Index: 33
#2Marco S. Giarratana (Charles III University of Madrid)H-Index: 17
We investigate the impact of rivals' product innovation and new advertising on a firm's financial market value in mature product markets. Our test bed is the carbonated soft drink market between 1999 and 2003, a period characterized by a near duopoly between Coca-Cola and Pespi. Empirically, we focus on new product announcements as a proxy of product innovation and on filed trademarks as a measure of new advertising. We find that rival product announcements decrease a firm's financial market val...
112 CitationsSource
#1Robert W. Palmatier (UW: University of Washington)H-Index: 44
#2Lisa K. Scheer (MU: University of Missouri)H-Index: 19
Last. Todd J. Arnold (OSU: Oklahoma State University–Stillwater)H-Index: 22
view all 4 authors...
Relationship marketing research and practice operate according to the paradigm that firms should invest in relationship marketing to build better relationships, which will generate improved financial performance. However, findings that relationship marketing efforts vary in their effectiveness across customers and may even be detrimental to performance challenge this belief. This article, therefore, offers a theoretical model that addresses three key issues: 1) what factors determine a customer’...
175 CitationsSource
#1Keith A. Richards (UH: University of Houston)H-Index: 9
#2Eli Jones (UH: University of Houston)H-Index: 32
Abstract Despite significant interest from both academicians and practitioners, customer relationship management (CRM) remains a huge investment with little measured payback. Intuition suggests that increased management of customer relationships should improve business performance, but this intuition has only inconsistent empirical or real world support. To remedy this situation, this study identifies a core group of expected CRM benefits and examines their ability to increase a firm's value equ...
317 CitationsSource
#1Christian Homburg (UMA: University of Mannheim)H-Index: 84
#2Ove Jensen (WHU - Otto Beisheim School of Management)H-Index: 10
Last. Harley KrohmerH-Index: 18
view all 3 authors...
Abstract Little is known about the interface between separate marketing units and sales units. This article develops a multidimensional model of the marketing and sales interface. The model integrates a broad range of conceptual domains, including information sharing, structural linkages, power, orientations, and knowledge of marketing and sales. The authors empirically explore the conceptual model through a cross-industry study of 337 European Union–based companies. They identify five empirical...
184 CitationsSource
Cited By61
#1Thomas W. Doellman (SLU: Saint Louis University)H-Index: 3
#2Brian R. WalkupH-Index: 4
Last. Brian R. Chabowski (TU: University of Tulsa)H-Index: 14
view all 4 authors...
Last. Yu Feng
view all 0 authors...
#1Moeen Naseer Butt (SKKU: Sungkyunkwan University)H-Index: 2
#2Ahmed Baig (BSU: Boise State University)H-Index: 3
Last. Fazal Jawad Seyyed (LUMS: Lahore University of Management Sciences)H-Index: 6
view all 3 authors...
Marketing scholars commonly use Tobin’s Q approximation as a metric of firm performance despite criticism that it might provide false positives for marketing-related research questions. Tobin’s Q a...
Using the informative view of advertising as their theoretical lens, the authors propose that advertising provides information to investors in financial markets, analogous to its role for customers...
#1Brent Lao (ISU: Illinois State University)H-Index: 1
#2Sheng Yi (CSUDH: California State University, Dominguez Hills)
#1Jérémy Morvan (University of Western Brittany)
#2Marine Le Gall-Ely (University of Western Brittany)H-Index: 10
The aim of this article is to comment on the proposals set out by Hanssens in his article ‘The case for research on the marketing–finance interface’. For each insight, we present the main aspects o...
#1Jérémy Morvan (University of Western Brittany)
#2Marine Le Gall-Ely (University of Western Brittany)H-Index: 10
L’objectif de ce papier est de commenter les propositions enoncees par Hanssens (2019). Pour chaque « insight », nous presentons les principaux elements theoriques de la finance et discutons de la ...
#1Mingli Xu (SCNU: South China Normal University)
#2Wei Yang (ECUST: East China University of Science and Technology)
Last. Zhixiong Huang (Zhejiang University of Finance and Economics)H-Index: 1
view all 3 authors...
Abstract This study uses public opinions on tourism in China in 2010–2017 as exogenous shocks to analyze how the capital market responds to public opinions on tourism events, and how the investor relations (IR) of listed firms affects investor responses in the tourism industry. We find that firms located in provinces where public opinions broke out experience significant decreases in cumulated abnormal returns, thereby indicating investors’ pessimistic reaction on negative events in the local to...
#1Shalini N. Tripathi (Jaipuria Institute of Management)H-Index: 5
#2Dheeraj Misra (Jaipuria Institute of Management)H-Index: 2
Last. Masood H. Siddiqui (Jaipuria Institute of Management)H-Index: 6
view all 3 authors...
AbstractThe objective of this article is to assess the impact of advertising intensity of a firm on its market risk or beta in the Indian consumer goods sector. Our sample companies are part of fou...