Commitment to marketing spending through recessions

Abstract

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.

The Marketing Firm as a Metacontingency:Revealing the Mutual Relationships between Marketing and Finance

“…In addition, the numerator of the free cash flow margin is the financial result that is effectively used by the company for its operations during the following year, that is, the amount of cash the company has left remaining in each year (Currim, Lim, & Zhang, 2016;Fayed & Dubey, 2016;Joseph & Richardson, 2002). It is stored and can be used as an input, with a positive sign indicating a cash inflow or a negative sign indicating a cash outflow.…”

“…Spending on marketing activities brings financial consequences to the company through the consumption scenario elaborated by the firm, which can reinforce future spending choices regarding those activities (Foxall, 2015). In this sense, the choice of how much to spend on any activity can be influenced by its financial effects (Currim et al, 2016;Joseph & Richardson, 2002).…”

“…Basic laboratory research on choice has shown the frequency of the reinforcer as being the main dimension affecting choice (Grace, 1999;Todorov, 1973). But research at the level of the firm has not used this theoretical framework (Currim et al, 2016), which limits this prior generalization. Therefore, to deal with the firm-level contextualization between marketing investments as a choice and their reinforcers, adaptations to the GML are necessary.…”

Marketing firm performance: When does marketing lead to financial gains?

“…Marketing is one of the predictors of profit and market value (Hanssens & Pauwels, ; Hughes et al, ; Katsikeas et al, ). Even if the company faces suppression of financial gains in the recent scenario, the prior period of gain attenuates the degree of crisis (Currim et al, ) if, nevertheless, it adopts profit‐driving behaviors. Therefore,H3a When a company is financially reinforced and at the same time a deprivation of commercial exchanges takes hold, if marketing behavior (investments) is intensified, profitability is maximized.H3b When a company is financially reinforced and at the same time a deprivation of commercial exchanges takes hold, if marketing behavior (investments) is intensified, the gains in the financial market are maximized.…”

“…Financial resource allocation is a managerial decision that sometimes leads to dilemmas regarding whether investments in activities within a company should be increased or decreased (Kahle & Stulz, ; Matvos & Seru, ). These dilemmas are more typical in recessionary economic periods, when there can be a drastic reduction in the funds that go to a company program due to increased costs and expenses incurred in the company (Currim, Lim, & Zhang, ). If this occurs, the sum of what it can offer customers, investors, or owners/shareholders can change.…”