The Effect of Being a Top Media Spender on Equity Risk: A Study of Restaurant Firms
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Marketing theory posits that firm-level advertising spending is effective in reducing equity risk (i.e., risk associated with equity holding). However, prior studies using the sample of the firms in some industries showed that the theory might not hold in a specific industry. For example, in the restaurant industry, an increase of advertising expenditures was found to increase equity risk. The counter intuitive results require marketing researchers to understand further why advertising expenditures harm shareholders’ value with increasing their equity holding risk. Using the sample of the restaurant firms, whose advertising was found to increase equity risk, this paper addresses the important question why the firm-level advertising from the restaurant firms is not effective in reducing equity risk. I propose the hypothesis that advertising spending from the restaurant firms, who focus on long-term-oriented marketing communication, will not increase equity risk since long-term-oriented marketing will create marketing intangibles that help to reduce the volatility of future cash flows. Considering the firms in the list of “top media spenders” as the firms who focus on long-term-oriented marketing communication, this paper empirically shows that restaurant firms’ being in the top media spender list would reduce their equity risk and also mitigate the risk-increasing effect of advertising. With the findings, this paper provides important and interesting implications to the literature and advertising practitioners.
Abstract
Marketing theory posits that firm-level advertising spending is effective in reducing equity risk (i.e., risk associated with equity holding). However, prior studies using the sample of the firms in some industries showed that the theory might not hold in a specific industry. For example, in the restaurant industry, an increase of advertising expenditures was found to increase equity risk. The counter intuitive results require marketing researchers to understand further why advertising expenditures harm shareholders’ value with increasing their equity holding risk. Using the sample of the restaurant firms, whose advertising was found to increase equity risk, this paper addresses the important question why the firm-level advertising from the restaurant firms is not effective in reducing equity risk. I propose the hypothesis that advertising spending from the restaurant firms, who focus on long-term-oriented marketing communication, will not increase equity risk since long-term-oriented marketing will create marketing intangibles that help to reduce the volatility of future cash flows. Considering the firms in the list of “top media spenders” as the firms who focus on long-term-oriented marketing communication, this paper empirically shows that restaurant firms’ being in the top media spender list would reduce their equity risk and also mitigate the risk-increasing effect of advertising. With the findings, this paper provides important and interesting implications to the literature and advertising practitioners.
참고문헌 (22)
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