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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 threshold, but they are positively related for firms that advertise above that threshold. Perhaps because this contingent relationship is difficult for analysts to learn through observation of the stock market, analysts ignore value-relevant advertising expenditure information when they forecast firm value. [ABSTRACT FROM AUTHOR]

Marketing decision makers are increasingly aware of the importance of shareholder value maximization, which calls for an evaluation of the long-term effects of their actions on product-market response and investor response. However, the marketing literature to date has focused on the sales or profit response of marketing actions, and the goals of marketing have traditionally been formulated from a customer perspective. Recently, there have been a few studies of the long-term investor response to marketing actions. The current research investigates one important aspect of this impact, the long-term relationship between advertising spending and market capitalization. The authors hypothesize that advertising can have a direct effect on valuation (i.e., an effect beyond its indirect effect through sales revenue and profit response). The empirical results across two industries provide support for the hypothesis that advertising spending has a positive, long-term impact on own firms' market capitalization and may have a negative impact on the valuation of a competitor of comparable size. The authors quantify the magnitude of this investor response effect for and discuss its implications for further research. [ABSTRACT FROM AUTHOR]

Marketing executives are being urged to speak in the language of finance to gain internal support for marketing initiatives. Responding to this call, the authors examine the impact of a firm's advertising and its research and development (R&D) on the systematic risk of its stock, a key metric for publicly listed firms. They hypothesize that a firm's advertising and R&D expenditures create intangible assets that insulate it from stock market changes, lowering its systematic risk. They test the hypotheses using a panel data on 644 publicly listed firms between 1979 and 2001, consisting of five-year moving windows. They scale the firm's advertising and R&D expenditures by its sales. After controlling for factors that accounting and finance researchers have shown to be associated with systematic risk, the authors find that advertising/sales and R&D/sales lower a firm's systematic risk. The article's findings extend prior research that has focused primarily on the effect of marketing initiatives on performance metrics without consideration of systematic risk. For practice, the ability of advertising and R&D to reduce systematic risk highlights the multifaceted implications of advertising and research programs. The article's findings may surprise senior management, some of whom are skeptical of the financial accountability of advertising programs. [ABSTRACT FROM AUTHOR]