Asymmetric Roles of Advertising and Marketing Capability in Financial Returns to News: Turning Bad into Good and Good into Great

Abstract

News reports carrying positive or negative sentiment about a firm influence its stock market performance. This study examines how two firm-controllable marketing factors, advertising and marketing capability, moderate the relationship between news stories and firm stock returns. Analysis of a panel data set of more than 7,000 firm-month observations indicates asymmetric and complementary moderating roles of the two marketing variables: advertising reinforces the favorable impact of positive news on abnormal stock returns, and marketing capability mitigates the adverse impact of negative news. Moreover, these moderating effects operate through different stakeholders. Whereas the moderating effect of marketing capability is due to its influence on customers and thus affects the level and volatility of future cash flows, advertising moderates the effect of news through individual investors’ attention and response to the news. The econometric analysis accounts for potential endogeneity between news reports, stock returns, and marketing variables, and the results are robust to alternative measures and analysis approaches. The findings suggest the need for managers to broaden their stakeholder focus when evaluating advertising's returns and to communicate the value of marketing capability to investors.

Factors Affecting Consumer Attitude towards Financial Adverts in Ghana’s Banking Industry

“…This confirms previous research that advertising content is critically important to getting consumers to develop positive attitude towards the financial products advertised (Chowdhury et al, 2007;El-Adly, 2010;ur Rehman et al, 2014;Waller, 1999;Xiong, & Bharadwaj, 2013).…”

“…In fact, many past studies have established that adverts by service providers are part of strong external factors targeted at inducing positive consumer responses to products, and that financial adverts significantly influences consumer attitudes towards financial services in general (e.g., Chowdhury et al, 2007;El-Adly, 2010;Latif & Abideen, 2011;Teixeira et al, 2010;Xiong & Bharadwaj, 2013;Zhang & Skiena, 2010). Several factors can influence consumer attitudes towards adverts in general such as social, religious, demographic, situational and the nature of the advert (Ajzen, 1991;Zeng, Huang, & Dou, 2009).…”

“…Thus, advertising plays a key role in influencing consumer attitude and purchasing decisions for financial products (Kotler & Keller, 2016;ur Rehman, Nawaz, Khan, & Hyder, 2014). When consumer develop negative attitude towards adverts, it can lead to low patronage of products and future participation in perceived negative or offensive adverts (Xiong & Bharadwaj, 2013;Zhang & Skiena 2010;Waller, 1999). In particular, Waller (1999) found that offensive advertising of products affected consumer"s attitude towards their repeated participation in the adverts and their purchasing intentions for products advertised.…”

“…They found that cognitive drivers such as perceived usefulness and irritation, affective drivers such as perceived entertainment and enjoyment are important factors in teenagers" acceptance of mobile advertisement. In addition, Aaker et al (1995)"s review of the extant advertising literature reveals four basic consumers" attitudinal factors towards the nature of advertising such as informative, irritation, entertaining, and credible (e.g., Chowdhury et al, 2007;Chowdhury, Parvin, Weitenberner, & Becker, 2010;El-Adly, 2010;ur Rehman et al, 2014;Xiong, & Bharadwaj, 2013;Latif & Abideen, 2011;Rawal, 2013;.…”

“…Consumers are always willing to hear and follow adverts that they perceive as credible in content and source (Xiong & Bharadwaj, 2013;Latif & Abideen, 2011;Kotler & Keller, 2012;Zhang & Skiena 2010).…”