Commitment to marketing spending through recessions: Better or worse stock market returns?
Abstract
Purpose
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?
Design/methodology/approach
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.
Findings
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.
Research limitations/implications
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.
Originality/value
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.
Keywords
Acknowledgements
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.
Citation
Currim, I.S., Lim, J. and Zhang, Y. (2016), "Commitment to marketing spending through recessions: Better or worse stock market returns?", European Journal of Marketing, Vol. 50 No. 12, pp. 2134-2161. https://doi.org/10.1108/EJM-08-2015-0541
Publisher
:Emerald Group Publishing Limited
Copyright © 2016, Emerald Group Publishing Limited