TY - JOUR
T1 - Managed earnings
T2 - The negative impact of marketer’s discretionary advertising expenditures on firm performance
AU - Meyer, Heather M.
AU - Ujah, Nacasius U.
N1 - Publisher Copyright:
© 2017, © Emerald Publishing Limited.
PY - 2017
Y1 - 2017
N2 - Purpose: The decisions marketing managers make on advertising expenditures are vital to maintaining the sales and profitability of a firm. However, these decisions have not been taken into account to a great enough extent when determining a firm’s performance. The purpose of this paper is to better understand the marketing-finance interface and to reveal the effect marketers’ discretionary advertising expenditures can have on firm performance. In particular, the real activities method of managed earnings (ME) will be used to study this phenomenon. Design/methodology/approach: The initial sample consisted of all the companies that appear in the North American COMPUSTAT files over the period 1970-2014. Since the focus here is on the effect of discretionary advertising expenses on firm performance, the authors restricted the samples to only include observations with advertising expenses. Therefore, the sample included 14,732 firms. Findings: OLS regressions revealed a negative relationship between marketers’ discretionary advertising expenditures and firm performance using return on assets as a proxy for firm performance. Additional regressions displayed similar results for return on sale and return on cash adjusted asset proxies. Fixed effect and Tobit regressions also confirmed these findings. Finally, this effect was especially true for low performing firms. The economic significance of these findings on firm performance is also discussed. Originality/value: The decisions made by marketing managers on advertising promotional efforts impact sales directly and brand equity indirectly, but they can also have an impact on firm performance. Therefore, it is important for investors to understand the level of ME in relation to marketing and advertising decisions that are taking place at their firm.
AB - Purpose: The decisions marketing managers make on advertising expenditures are vital to maintaining the sales and profitability of a firm. However, these decisions have not been taken into account to a great enough extent when determining a firm’s performance. The purpose of this paper is to better understand the marketing-finance interface and to reveal the effect marketers’ discretionary advertising expenditures can have on firm performance. In particular, the real activities method of managed earnings (ME) will be used to study this phenomenon. Design/methodology/approach: The initial sample consisted of all the companies that appear in the North American COMPUSTAT files over the period 1970-2014. Since the focus here is on the effect of discretionary advertising expenses on firm performance, the authors restricted the samples to only include observations with advertising expenses. Therefore, the sample included 14,732 firms. Findings: OLS regressions revealed a negative relationship between marketers’ discretionary advertising expenditures and firm performance using return on assets as a proxy for firm performance. Additional regressions displayed similar results for return on sale and return on cash adjusted asset proxies. Fixed effect and Tobit regressions also confirmed these findings. Finally, this effect was especially true for low performing firms. The economic significance of these findings on firm performance is also discussed. Originality/value: The decisions made by marketing managers on advertising promotional efforts impact sales directly and brand equity indirectly, but they can also have an impact on firm performance. Therefore, it is important for investors to understand the level of ME in relation to marketing and advertising decisions that are taking place at their firm.
KW - Advertising
KW - Financial performance
KW - Marketing management
KW - Marketing strategy
KW - Marketing-finance interface
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U2 - 10.1108/MIP-03-2016-0045
DO - 10.1108/MIP-03-2016-0045
M3 - Article
AN - SCOPUS:85013078045
SN - 0263-4503
VL - 35
SP - 192
EP - 204
JO - Marketing Intelligence and Planning
JF - Marketing Intelligence and Planning
IS - 2
ER -