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?
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.
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.
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.
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 authors thank Raji Srinivasan (University of Texas at Austin) for comments on an earlier draft. The authors contributed equally to this article. This work was supported by Dean’s office of the UCI Merage School of Business.
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