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)
Sources
Abstract
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...
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