Although there is literature on how top executives' compensation influences general management decisions, relatively little is known about whether and how compensation influences advertising and research-and-development (R&D) spending decisions. This study addresses two questions. First, is there an incentive effect of long-versus short-term compensation on advertising and R&D spending? Second, is there a mediation effect of advertising and R&D spending on the relationship between long-versus short-term compensation and stock market return? The authors address these questions using a combination of ExecuComp, Compustat, and Center for Research in Security Prices data on 842 firms during the 1993-2005 period. They find that an increase in the equity to bonus compensation ratio is positively associated with an increase in advertising and R&D spending as a share of sales. Advertising and R&D spending as a share of sales also mediates the effect of equity to bonus ratio on stock market return. The authors discuss implications for top management seeking to mitigate myopic management of resources by employing compensation to incentivize a longer-term orientation for advertising and R&D spending to improve stock return.

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Purpose This paper aims to address two unique and important questions. First, how do recessions directly affect firms’ marketing spending decisions? Second, and more importantly, do firms which are more committed to marketing spending through past recessions achieve better stock market returns? Design/methodology/approach This study is based on a combination of National Bureau of Economic Research, COMPUSTAT and Center for Research in Security Prices data on 6,000 firms between 1982 and 2009 which are analyzed using panel data-based regression models. Findings The authors find that firms cut marketing spending during recessions. However, firms committed to marketing spending during past recessions achieve better stock market returns. The findings are found to be robust across B2B and B2C industries, different periods and US firms which vary on the proportion of their global revenue from non-US sales. Research limitations/implications Top executives cut marketing budgets during recessions; however, if they can resist the pressures, and strategically continue to make marketing investments during recessions, they will achieve higher stock market returns. Originality/value This is the first paper to establish the longer-term (not short-term) positive stock market performance of continuous (not episodic) marketing spending through past recessions, i.e. the view that marketing spending is necessary (not discretionary) for stock returns.

Purpose This paper aims to focus on the unique goal of understanding how marketing spending, a proxy for firm visibility, moderates the effects of corporate social responsibility (CSR) strengths and concerns on stock returns in the short and long terms. In contrast to the resource-based view (RBV) of the firm, the visibility theory, based on stakeholder awareness and expectations, offers asymmetric predictions on the moderation effects of marketing spending. Design/methodology/approach The predictions are tested based on data from KLD, Compustat and Center for Research in Security Prices from 2001-2010 and panel data based regression models. Findings Two results support the predictions of the visibility theory over those of the RBV. First, strengths are associated with higher stock returns, for low marketing spending firms, and only in the long term. Second, concerns are associated with lower stock returns, for high marketing spending firms, also only in the long term. A profiling analysis indicates that high marketing spending firms have high R&D spending and are more likely to operate in business-to-customer than business-to-business industries. Practical implications The two findings highlight the importance of coordination among chief marketing, sustainability and finance officers investing in CSR and marketing for stock returns, contingent on the firm’s marketing and R&D spending and industry characteristics. Originality/value This paper identifies conditions under which CSR is and is not related to stock returns, by uniquely considering three variables omitted in most past studies: marketing spending, CSR strengths and concerns and short- and long-term stock returns, all in the same study.

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