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Compensation packages including incentives tied to a company’s stock price can be powerful motivators for corporate leaders. But the authors’ study also showed that these motivations can produce some serious unintended consequences. Equity incentives can tempt CMOs to engage in short-sighted marketing management such as cutting R&D and advertising spending in an effort to inflate current earnings and enhance the company’s stock price. This myopic management boosts their personal earnings at the expense of their company’s long-term performance. Our findings highlight the pitfalls and limitations of overreliance on equity in managerial compensation packages. Companies could continue to pay their C-level executives based on stock price performance but defer the payout to the future until the long-term consequences of their decisions become apparent. This would reduce the temptation to act on short-term impulses to boost equity compensation.

The heightened polarization in the US political landscape and the increased emphasis on personal values and identity in politics create important externalities affecting the functioning of commercial entities in the marketplace. We discuss the construct of a brand’s political positioning—the extent to which the perceptual profile (brand image) of a commercial entity aligns with the perceptual profile of a major political party—and show its effects on firm valuation and sales in the aftermath of the 2016 US presidential election. We propose a mechanism to explain the observed performance effects—consumers’ shifting preferences toward (away from) the brands perceptually associated with the winning (losing) political party. We present evidence supporting this mechanism: the documented valuation effects are stronger for consumer-facing firms, the sales react immediately after the election (fourth quarter of 2016), and the firm value is tied to the public sentiment toward the political entity to which the corporate brand is perceptually similar.

We assess the role of both accruals manipulation (AM) and real activities manipulation (RAM) in inducing overvaluation at the time of a seasoned equity offering (SEO). Our results reveal that earnings management is most consistently and predictably linked with post-SEO stock market underperformance when it is driven by RAM; in particular, the opportunistic reduction of expenditures on R&D and selling, general, and administrative activities. Thus, overvaluation at the time of the SEO is more likely when managers actively engage in more opaque channels to overstate earnings. Our findings are particularly relevant because managers exhibit a greater propensity for RAM at the time of SEOs, even though RAM is more costly in the long run. JEL Classifications: G14; G31; M4; M41

One of the key challenges in empirically modeling the total impact of marketing assets on financial performance is the limited availability of marketing metrics data over time. The author presents an approach for estimating the total financial impact of marketing assets with limited time-series data and demonstrates the approach with an application to brand equity research. Consistent with prior research, the aggregate analyses indicate that brand equity, as measured by customer mindset metrics, positively affects current financial performance. In addition, the author documents brand equity's significant and much greater impact on the firm's future financial performance: at the aggregate, only a small portion of the total financial impact of brand equity is reflected in current-year profits, whereas the bulk of the profitability impact is realized in the future. Most importantly, however, the analyses document significant heterogeneity of these effects: in some industries, the entire direct impact is contemporaneous, whereas in others, no contemporaneous effects are observed and all of the profitability impact occurs in the future.

We examine the role personal compensation incentives of CMOs and CEOs play in inducing myopic marketing management. We find that CEO equity incentives are largely unrelated to the incidence and severity of myopic marketing management. CMO equity compensation, on the other hand, is highly predictive of the incidence and severity of myopic marketing management. Contrary to the arguments that the presence of a CMO in the organization can help maintain customer focus and support for marketing departments, we find that CMOs not only fail to prevent myopia, but further exacerbate the problem as the market-based (i.e., equity) portion of their personal compensation increases. Our analyses utilizing multiple methods allow for a causal interpretation of these findings. Consistent with the CMO’s personal enrichment motivation we also find that CMOs take advantage of artificially inflated stock valuation by exercising more stock options and selling more of their personal equity holdings in the years when myopic marketing management occurs. Our findings highlight the pitfalls and limitations of overreliance on equity in managerial compensation packages.

We propose a “visual listening in” approach (i.e., mining visual content posted by users) to measure how brands are portrayed on social media. Using a deep-learning framework, we develop BrandImageNet, a multi-label convolutional neural network model, to predict the presence of perceptual brand attributes in the images that consumers post online. We validate model performance using human judges, and we find a high degree of agreement between our model and human evaluations of images. We apply the BrandImageNet model to brand-related images posted on social media and compute a brand-portrayal metric based on model predictions for 56 national brands in the apparel and beverages categories. We find a strong link between brand portrayal in consumer-created images and consumer brand perceptions collected through survey tools. Images are close to surpassing text as the medium of choice for online conversations. They convey rich information about the consumption experience, attitudes, and feelings of the user. We show that valuable insights can be efficiently extracted from consumer-created images. Firms can use the BrandImageNet model to automatically monitor in real time their brand portrayal and better understand consumer brand perceptions and attitudes toward theirs and competitors’ brands.

At a given point in time, individual consumers may be in different stages of the product adoption or consumption cycle. As a result, different types of behavioral patterns may coexist within a single product market. Existing segmentation approaches typically do not address long-term dynamics in customer response and do not adequately capture this phenomenon. We develop an approach for modeling the coexistence of multiple dynamic behavioral patterns (business scenarios) within a single product market. We apply this approach to physician panel data on drug prescriptions and direct-to-physician promotions. We find markedly different responses across physician segments. For firms that track customer-level marketing activity and sales over time, market segmentation based on dynamic scenarios can provide a new tool for efficient targeting. The proposed approach is straightforward to implement and is scalable to very large samples and continuous testing.

This article reviews the theory and empirical evidence of myopic management as it pertains to marketing practice. It documents empirically the stock market's inability to properly value marketing and innovation activity in the face of the potential for myopic management. The author assesses the total financial consequences of myopic management (the practice of cutting marketing and research-and-development spending to inflate earnings) and finds that myopia has a long-term net negative impact on firm value. Myopic management is contrasted with accounting accruals-based earnings inflation, and the author shows that the real activities (i.e., myopic management), and not the accounting numbers manipulation, have the greater negative impact on future financial performance. These results are consistent across alternative abnormal return measures and alternative benchmarks. The author argues that shareholders, managers, and marketing researchers can play a role in limiting myopic management practices.

The authors develop and validate a conditional multiplier approach for valuing branded businesses. The approach enhances traditional multiplier-based valuation by explicitly incorporating brand characteristics into the model. The authors present theoretical arguments why, develop a model to demonstrate how, and provide an empirical illustration to show that brand assets are not fully reflected in contemporaneous margins, and therefore valuation accuracy can be improved by incorporating information about the properties of the firm's brand asset directly into a valuation framework. The authors find that brand metrics have statistically significant associations with valuation multipliers and add incremental explanatory power to accounting variables in explaining valuation multipliers. Out-of-sample analysis shows a 16% improvement in the mean absolute error for predictions that take into account brand metrics compared with predictions based on accounting variables alone.

We appreciate the opportunity to respond to the commentaries and additional analyses by Fornell et al. [Fornell, C., S. Mithas, F. V. Morgeson III. 2009a. The economic and statistical significance of stock returns on customer satisfaction. Marketing Sci. 28(5) 820–825] and Ittner et al. [Ittner, C., D. Larcker, D. Taylor. 2009. The stock market's pricing of customer satisfaction. Marketing Sci. 25(5) 826–835]. Both studies have multiple theoretical and econometric limitations that challenge the validity of their arguments and findings (e.g., neither study allows for time-varying risk factor loadings in their assessments of mispricing although the composition of firms in their analyzed portfolios changes over time, Fornell et al. mischaracterize the efficient markets hypothesis, and Ittner et al. do not use standard panel data econometric methods and models). Generalizations about customer satisfaction, like any other construct, should be assessed by appropriate econometric methods and should withstand rigorous scrutiny. We believe an open, frank dialogue can help clear up misconceptions, air central issues, and advance better understanding of methods and analyses for assessing the financial market implications of marketing metrics such as customer satisfaction.

Srinivasan and Hanssens (2009) offer an ambitious research agenda for establishing the links among marketing actions, value creation, and observed market values. They describe the research technologies available for exploring these links and summarize the current understanding of these links based primarily on evidence from the marketing literature. We complement Srinivasan and Hanssens's work by highlighting the insights, opportunities, and challenges that accounting researchers have encountered in addressing highly related questions. This commentary proceeds as follows: We summarize accounting researchers' broad interest in intangible invest ments and its potential applicability to the research agenda that Srinivasan and Hanssens propose. Next, we discuss accounting research that links marketing actions to interme diate measures of value creation. We follow this with a dis cussion of the theoretical foundations for and what can be learned from value-relevance research designs. Then, we discuss short-window studies. Finally, we suggest potential tests of the appropriateness and completeness of the mar ket's reaction to marketing actions and present evidence from the accounting literature that is relevant to the ques tion whether managers can influence investors' understand ing of marketing actions.

We investigate the association between information contained in the American Customer Satisfaction Index (ACSI) metric and future stock market performance. Some past research has provided results suggesting that the financial markets misprice customer satisfaction; i.e., firms advantaged in customer satisfaction are posited to earn positive future-period abnormal stock returns. We reexamine this relationship and find that statistically significant evidence of financial market mispricing of customer satisfaction is limited to firms in the computer and Internet sector. The results suggest that the mispricing anomaly reported in past research appears not to stem from a systemic failure of the financial markets to impound the financial implications of customer satisfaction into current stock price, but rather from abnormal returns achieved by a small group of satisfaction leaders in the computer and Internet sector over the period of study. Analyses based on unconditional risk covariates and analyses using conditional risk covariates estimated from short-window, high-frequency data support this finding.

We appreciate the opportunity to respond to the commentaries and additional analyses by Fornell et al. [Fornell, C., S. Mithas, F. V. Morgeson III. 2009a. The economic and statistical significance of stock returns on customer satisfaction. . (5) 820–825] and Ittner et al. [Ittner, C., D. Larcker, D. Taylor. 2009. The stock market's pricing of customer satisfaction. (5) 826–835]. Both studies have multiple theoretical and econometric limitations that challenge the validity of their arguments and findings (e.g., neither study allows for time-varying risk factor loadings in their assessments of mispricing although the composition of firms in their analyzed portfolios changes over time, Fornell et al. mischaracterize the efficient markets hypothesis, and Ittner et al. do not use standard panel data econometric methods and models). Generalizations about customer satisfaction, like any other construct, should be assessed by appropriate econometric methods and should withstand rigorous scrutiny. We believe an open, frank dialogue can help clear up misconceptions, air central issues, and advance better understanding of methods and analyses for assessing the financial market implications of marketing metrics such as customer satisfaction.

The authors assess which brand asset metrics provide incremental information content to accounting performance measures in explaining stock return. The analysis focuses on the five “pillars” (i.e., central brand attributes) that form the basis for the newly updated Young & Rubicam Brand Asset Valuator model: differentiation, relevance, esteem, knowledge, and energy. Analysis shows that perceived brand relevance and energy provide incremental information to accounting measures in explaining stock returns. However, esteem and knowledge do not; that is, their effects are reflected in current-term accounting measures and in brand relevance and energy. The financial markets do not view brand differentiation as having incremental information content, but they should. Changes in differentiation are indicative of future-term accounting performance, which in turn affects stock return. These conclusions are invariant to the use of alternative accounting performance measures, risk adjustments, and the inclu...

Managers often have incentives to artificially inflate current-term earnings by cutting marketing expenditures, even if it comes at the expense of long-term profits. Because investors rely on current-term accounting measures to form expectations of future-term profits, inflating current-term results can lead to enhanced current-term stock price. We present evidence that some firms engage in this type of “myopic marketing management” at the time of a seasoned equity offering (SEO). In particular, a greater proportion of firms than is typical report earnings higher than normal and marketing expenditures lower than normal at the time of their SEO. Although they realize that firms might be undertaking strategies to artificially inflate current-term earnings, the financial markets are not adequately identifying and properly valuing the firms doing so. Our results indicate that myopic firms are able to temporarily inflate their stock market valuation, but in the long run, as the consequences of cutting marketing spending become manifest, they have inferior stock market performance. We propose some actions that might reduce the incentives for myopic behavior.

This paper argues that the pharmaceutical industry represents an exciting opportunity to carry out academic research. The nature of the industry allows researchers to answer new questions, develop new methodologies for answering these questions as well as to apply existing methodology to new data. The paper opens with some industry background, then provides a brief overview of some important research areas and discusses the open questions in each area. Issues of data type and availability are also discussed.

Much public attention and considerable controversy surround pharmaceutical marketing practices and their impact on physicians. However, views on the matter have largely been shaped by anecdotal evidence or results from analyses with insufficient controls. Making use of a dynamic fixed-effects distributed lag regression model, we empirically assess the role that two central components of pharmaceutical marketing practices (namely, detailing and sampling) have on physician prescribing behavior. Key differentiating features of our model include its ability to (i) capture persistence in the prescribing process and decompose it into own-growth and competitive-stealing effects, (ii) estimate an unrestricted decay structure of the promotional effects over time, and (iii) control for physician-specific effects that, if not taken into account, induce biased coefficient estimates of detailing and sampling effects. Based on pooled time series cross-sectional data involving three drugs, 24 monthly observations, and 74,075 individual physicians (more than 2 million observations in total), we find that detailing and free drug samples have positive and statistically significant effects on the number of new prescriptions issued by a physician. However, we find that the magnitudes of the effects are modest.

Firms allocate their limited resources between two fundamental processes of creating value (i.e., innovating, producing, and delivering products to the market) and appropriating value (i.e., extracting profits in the marketplace). Although both value creation and value appropriation are required for achieving sustained competitive advantage, a firm has significant latitude in deciding the extent to which it emphasizes one over the other. What effect does strategic emphasis (i.e., emphasis on value creation versus value appropriation) have on firm's financial performance? The authors address this issue by examining the effect that shifts in strategic emphasis have on stock return. They find that the stock market reacts favorably when a firm increases its emphasis on value appropriation relative to value creation. This effect, however, is moderated by firm and industry characteristics, in particular, financial performance, the past level of strategic emphasis of the firm, and the technological environment in which the firm operates. These results do not negate the importance of value creation capabilities, but rather highlight the importance of isolating mechanisms that enable the firm to appropriate some of the value it has created.

We assess the role of both accruals manipulation (AM) and real activities manipulation (RAM) in inducing overvaluation at the time of a seasoned equity offering (SEO). Our results reveal that earnings management is most consistently and predictably linked with post-SEO stock market under-performance when it is driven by RAM, in particular, the opportunistic reduction of expenditures on R&D and selling, general and administrative activities. Thus, overvaluation at the time of the SEO is more likely when managers actively engage in more opaque channels to overstate earnings. Our findings are particularly relevant because managers exhibit a greater propensity for RAM at the time of SEOs, even though RAM is more costly in the long run.

We consider how public firms influence their stock market valuations by timing the introduction of innovative new products. Our focus is on innovation ratchet strategy—firms timing the introduction of innovations in order to demonstrate an improvement in the number of introductions over time. We document that public firms use an innovation ratchet strategy more often than do private firms and that the stock market rewards public firms for doing so. These rewards from the stock market, however, come at the expense of performance in product markets. Specifically, because firms using an innovation ratchet strategy delay some product introductions, they have significantly lower sales growth in the year they ratchet. Finally, we identify firm and market characteristics that influence the likelihood that a public firm will engage in an innovation ratchet strategy.

Mergers are central to corporate growth strategies but they are disruptive events that cause customers, employees, and investors to reassess their relationships with the new merged entity. The choice of corporate branding is an important strategic decision in mergers as it provides a means to communicate context-appropriate positioning and messaging for the merged entity and can assist in securing the ongoing loyalty of customers, employees, and investors. We investigate the value implications of corporate branding in mergers. Using a sample of 216 large mergers undertaken during 1997–2006, we classify merger transactions into three groupings according to the post-merger corporate branding: acquisition (the identity of one of the merging companies is discarded and it is rebranded with the other firm’s name and symbol), business-as-usual (both firms continue to operate under their own corporate names and symbols), and amalgamation (elements of both corporate brands are maintained in the new brand). We undertake event study and time-varying calendar-time portfolio analyses to assess potential differences in the value implications of corporate branding in mergers. We find significant differences in the immediate market reaction to the merger announcements and significant differences in the post-merger performance across the three corporate branding types. Firms using the more expedient acquisition and business-as-usual branding strategies underperform firms that choose the more sophisticated amalgamation branding. Our findings provide insight into a signaling versus a market-based asset management role of corporate brands in mergers.

We review accounting principles related to the reporting of marketing activities and evaluate their implications for marketing research and practice. Based on our review, we argue that current accounting practices contribute significantly to the declining influence of marketing within organizations and the rise of myopic management. Financial reports misrepresent marketing contribution and impede its fair assessment. Changes to current marketing accounting practices are needed. Balance sheet recognition of all marketing-related intangibles emerged as the prevailing proposed solution. We, however, argue that balance sheet recognition of marketing intangibles will not remedy the situation. Instead, we advocate expanded mandatory disclosure of marketing-related activities and performance drivers. We advance specific propositions intended to enhance the quality of financial reporting and improve marketing management practice. We further call for specific research to help facilitate improvements in the financial reporting model as it pertains to marketing-related activities.

Because current earnings predict future financial performance, the stock market reacts strongly to earnings announcements. How rapidly and in what manner information about marketing actions and strategies is accounted for in the stock valuation is less clear. We examine the financial market's ability to fully and timely value marketing-related information released along with quarterly earnings announcements. We find evidence consistent with the market initially under-appreciating marketing and R&D effort. Specifically, we find differences in the immediate market response to earnings announcements for firms expanding versus reducing their marketing and R&D effort. However, we also observe a significantly greater positive stock price drift (i.e., systematic stock price adjustment) in the months following an earnings announcement for firms increasing marketing and/or R&D expenditures. We examine the dynamics and the mechanism underlying this differential drift. Firms increasing their marketing and/or R&D spending report significantly greater future operating performance than firms decreasing their marketing and R&D spending and the stock price adjustment (drift) accelerates around the time of the subsequent earnings announcement. Our findings suggest that the stock market takes time to fully incorporate implications of strategic marketing decisions. They also suggest the stock market tends to update firm valuation when the outcomes of marketing strategies are realized in future financial performance and new performance signals are sent to the market.

Making use of the efficient markets hypothesis as a starting point for analysis, we outline an approach for assessing financial value-relevance of marketing metrics. We illustrate the approach by investigating the association between information contained in the American Customer Satisfaction Index (ACSI) customer satisfaction metric and stock market performance. Our findings differ from previous research in that the methodological approach we use, while nesting other models, incorporates a number of efficient market considerations that previous research has not taken into account, e.g., issues ranging from unmodeled autocorrelation, to risk adjustments, to using the unanticipated component of a series in financial market analysis. We find evidence supportive of satisfaction having value-relevance. However, the ACSI metric provides statistically significant incremental value-relevance to accounting measures only for firms in the computer/Internet sector. For other sectors, i.e., the majority of firms in the sample, unanticipated changes in satisfaction do not provide statistically significant incremental information to accounting measures in explaining stock returns.

Some past research has provided results suggesting that the financial markets mis-price customer satisfaction, i.e., firms advantaged in customer satisfaction are posited to earn positive future-period abnormal stock returns. By allowing for differences across sectors in the economy, we provide evidence that any mis-pricing, if it exists, is not widespread but rather is limited to firms in the computer and internet sector. Analyses based on unconditional risk covariates and analyses using conditional risk covariates estimated from short-window, high frequency data support this finding.

Due to customer segmentation, multiple types of dynamic business scenarios (business-as-usual, escalation, hysteresis, and evolving business practice; Dekimpe and Hanssens 1999) may co-exist within a single product market. The authors develop an approach to model this phenomenon with time series panel data. Unit-root tests are used to group panelists by whether or not outcome (e.g., sales) and marketing activity (e.g., advertising, promotion) variables are stationary or evolving. This produces four clusters corresponding to each business scenario. Next, panel-data vector autoregressive models appropriate for each panelist cluster are estimated to assess the dynamics and the magnitude of the response to marketing effort. The approach is applied to physician panel data on drug prescriptions and direct-to-physician promotions. Estimation results show markedly different response dynamics (as captured by impulse response functions) and elasticities across the physician groups. The approach also produces better in-sample and holdout fits than pooled data models. For firms that track customer-level marketing activity and response over time, a segmentation based on dynamic business scenarios provides a new tool for targeting and efficient marketing resource allocation.

We assess which brand asset metrics provide incremental information content to accounting performance measures in explaining stock return. Our analysis focuses on the five "pillars," i.e., central brand attributes, that form the basis for the newly updated Young and Rubicam Brand Asset Valuator (Y&R BAV) model. Analysis shows that perceived brand Relevance and Energy provide incremental information to accounting measures in explaining stock return. Esteem and Knowledge do not, i.e., their effects are reflected in current-term accounting measures and in brand Relevance and Energy. We find that the financial markets do not view Differentiation as having incremental information content, when, in fact, they should. Changes in Differentiation are indicative of future-term accounting performance, which, in turn, affects stock return. These conclusions are invariant to the use of alternative accounting performance measures, risk adjustments, and to the inclusion of additional brand attributes into the analysis.

This paper argues that time-series econometrics provides valuable tools and opens exciting research opportunities to marketing researchers. It allows marketing researchers to advance traditional modeling and estimation approaches by incorporating dynamic processes to answer new important research questions. The authors discuss the challenges facing time-series modelers in marketing, provide an overview of recent methodological developments and several applications, and highlight fruitful areas for future research. This discussion is based on the First Annual Conference on 'Modeling Marketing Dynamics by Time Series Econometrics' at the Tuck School of Business at Dartmouth, Hanover, New Hampshire, USA on September 16-17, 2004. ispartof: Marketing Letters vol:15 issue:4 pages:167-183 status: published