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role of advertising and information asymmetry on firm performance

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Date Issued:
2012
Summary:
Research linking marketing to financial outputs has been gaining significance in the marketing discipline. The pertinent questions are, therefore: how can marketing improve measures of firm performance and draw potential investors to the company, and where is the quantitative proof to back up these assertions? This research investigates the role of marketing expenditures in the context of initial public offerings (IPOs). The proposed theoretical framework comes from marketing and finance literature, and uses econometric models to test the hypotheses. First, we replicate the results of a previous study by Luo (2008) showing a relationship between the firm's pre-IPO marketing spending and IPO underpricing. Next, we extend the previous study by looking at the IPO's long-run returns, types of risk, analyst coverage, and market/industry characteristics. The results of this study, based on a sample of 2,103 IPOs from 1996 to 2008, suggest that increased marketing spending positively impac ts firm performance. We examine different measures of firm performance, such as risk and long-run performance, whose results are important to the firm, its shareholders, and potential investors. This study analyzes the impact marketing spending has on IPO characteristics (IPO underpricing in the short-run and cumulative abnormal returns in the long run); risk characteristics (systematic, unsystematic, bankruptcy risk, and total risk); analyst coverage characteristics (the number of analysts, optimistic coverage, and forecast error) and market characteristics (market volatility and industry type). We control for variables such as firm size, profitability, and IPO characteristics. In this paper, the results show that increased marketing spending lowers underpricing, lowers bankruptcy risk, lowers total risk, leads to greater analyst coverage, leads to more favorable analyst coverage, and lowers analyst forecast error. For theory, this paper advances the literature on the
Title: The role of advertising and information asymmetry on firm performance.
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Name(s): Fine, Monica B.
College of Business
Department of Marketing
Type of Resource: text
Genre: Electronic Thesis Or Dissertation
Date Issued: 2012
Publisher: Florida Atlantic University
Physical Form: electronic
Extent: xv, 205 p. : ill. (some col.)
Language(s): English
Summary: Research linking marketing to financial outputs has been gaining significance in the marketing discipline. The pertinent questions are, therefore: how can marketing improve measures of firm performance and draw potential investors to the company, and where is the quantitative proof to back up these assertions? This research investigates the role of marketing expenditures in the context of initial public offerings (IPOs). The proposed theoretical framework comes from marketing and finance literature, and uses econometric models to test the hypotheses. First, we replicate the results of a previous study by Luo (2008) showing a relationship between the firm's pre-IPO marketing spending and IPO underpricing. Next, we extend the previous study by looking at the IPO's long-run returns, types of risk, analyst coverage, and market/industry characteristics. The results of this study, based on a sample of 2,103 IPOs from 1996 to 2008, suggest that increased marketing spending positively impac ts firm performance. We examine different measures of firm performance, such as risk and long-run performance, whose results are important to the firm, its shareholders, and potential investors. This study analyzes the impact marketing spending has on IPO characteristics (IPO underpricing in the short-run and cumulative abnormal returns in the long run); risk characteristics (systematic, unsystematic, bankruptcy risk, and total risk); analyst coverage characteristics (the number of analysts, optimistic coverage, and forecast error) and market characteristics (market volatility and industry type). We control for variables such as firm size, profitability, and IPO characteristics. In this paper, the results show that increased marketing spending lowers underpricing, lowers bankruptcy risk, lowers total risk, leads to greater analyst coverage, leads to more favorable analyst coverage, and lowers analyst forecast error. For theory, this paper advances the literature on the
Summary: marketing-financ e interface by extending the market-based assets and signaling theories. For practice, the results indicate that spending more money on marketing before the IPO and disclosing this information produces positive bottom-line results for the firm. KEYWORDS: Marketing-Finance, Risk, Financial Analysts, Marketing Spending, Firm Performance, Marketing Strategy Meets Wall Street, Long-Run Firm Performance, Underpricing, Stock Recommendations, Initial Public Offering, Marketing Strategy, Econometric Model.
Identifier: 794232820 (oclc), 3342050 (digitool), FADT3342050 (IID), fau:3853 (fedora)
Note(s): by Monica B. Fine.
Thesis (Ph.D.)--Florida Atlantic University, 2012.
Includes bibliography.
Electronic reproduction. Boca Raton, Fla., 2012. Mode of access: World Wide Web.
Subject(s): Investment analysis
Organizational effectiveness -- Measurement
Advertising
Financial services industry -- Marketing
Financial services industry -- Computer network resources
Persistent Link to This Record: http://purl.flvc.org/FAU/3342050
Use and Reproduction: http://rightsstatements.org/vocab/InC/1.0/
Host Institution: FAU