Asymmetric Roles of Advertising and Marketing Capability in Financial Returns to News: Turning Bad into Good and Good into Great

Journal of Marketing Research, Volume 50 (6), pp. 706-724, 2013

Posted: 27 Jan 2014 Last revised: 1 Feb 2014

See all articles by Guiyang Xiong

Guiyang Xiong

University of Georgia

Sundar G. Bharadwaj

University of Georgia--Terry School of Business

Date Written: December 1, 2013

Abstract

News reports carrying positive or negative sentiment about a firm influence its stock market performance. This study examines how two firm-controllable marketing factors, advertising and marketing capability, moderate the relationship between news stories and firm stock returns. Analysis of a panel data set of more than 7,000 firm-month observations indicates asymmetric and complementary moderating roles of the two marketing variables: advertising reinforces the favorable impact of positive news on abnormal stock returns, and marketing capability mitigates the adverse impact of negative news. Moreover, these moderating effects operate through different stakeholders. Whereas the moderating effect of marketing capability is due to its influence on customers and thus affects the level and volatility of future cash flows, advertising moderates the effect of news through individual investors' attention and response to the news. The econometric analysis accounts for potential endogeneity between news reports, stock returns, and marketing variables, and the results are robust to alternative measures and analysis approaches. The findings suggest the need for managers to broaden their stakeholder focus when evaluating advertising's returns and to communicate the value of marketing capability to investors.

Keywords: advertising, marketing capability, abnormal stock returns, cash flows, investor attention

JEL Classification: M31, M37, D82, C32, C33, G12, G14, M41

Suggested Citation

Xiong, Guiyang and Bharadwaj, Sundar G., Asymmetric Roles of Advertising and Marketing Capability in Financial Returns to News: Turning Bad into Good and Good into Great (December 1, 2013). Journal of Marketing Research, Volume 50 (6), pp. 706-724, 2013, Available at SSRN: https://ssrn.com/abstract=2385005

Guiyang Xiong (Contact Author)

University of Georgia ( email )

Department of Marketing and Distribution
148 Brooks Hall, Terry College of Business
Athens, GA Athens 30602-6254
United States

Sundar G. Bharadwaj

University of Georgia--Terry School of Business ( email )

105 Brooks Hall
Athens, GA 30602
United States

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