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The Direct and Indirect Effects of Advertising Spending on Firm Value

Author:
Joshi, Amit   Hanssens, Dominique M  


Journal:
Journal of Marketing


Issue Date:
2010


Abstract(summary):

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.


Page:
20-33


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