Authors: Monica B. Fine, Kimberly Gleason, and Michael Mullen
Published in: Marketing Intelligence & Planning, Volume 35, Issue 4 (2017), pages 560–576
Abstract
Purpose: Increasingly, marketing managers are asked to consider the financial implications—in terms of both book and market values—when making strategic decisions. The purpose of this paper is to investigate the role of marketing expenditures in explaining the variation in the aftermarket performance of a sample of firms conducting initial public offerings (IPOs).
Design/methodology/approach: Theories from marketing and finance—market‑based assets (MBA) theory and signaling theory, respectively—serve as the conceptual basis of this paper. The results of this study, based on a sample of 2,103 IPOs covering the 1996–2008 time period, suggest that increased marketing spending positively impacts aftermarket (i.e., stock price) performance.
Findings: The authors find that while short‑run aftermarket performance is positively and significantly impacted by pre‑IPO marketing spending, long‑run firm performance measures do not appear to be impacted by pre‑IPO marketing spending. Further, pre‑IPO marketing spending does not incrementally reduce underpricing or improve long‑run performance when IPOs take place during extreme market conditions such as recessions or hot markets, which is important to shareholders and potential investors in these firms.
Research limitations/implications: Theoretically, this paper advances the literature on the marketing‑finance interface by extending the MBA and signaling theories. Practically, the results indicate that spending more on marketing before the IPO—and disclosing that fact—produces measurable short‑run financial benefits for the firm .
Originality/value: While Luo (2008) documents a significant relationship between pre‑IPO marketing spending and IPO underpricing, few studies explore marketing’s impact on aftermarket stock price performance beyond the first day. This paper contributes by examining performance in both the short‑ and long‑run, testing under extreme market conditions, and assessing how long‑run performance is impacted during those extremes—finding implications relevant to managers and shareholders of firms considering public offerings.