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Exploring the impact of advertising and R&D expenditures on corporate brand value and firm-level financial performance

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Abstract

A parsimonious framework linking advertising expenditures and research and development expenditures to brand value, and brand value in turn to firm-level financial performance, was proposed and empirically investigated under four data conditions: data form, brand type, financial performance metric, and lag structure. Using pooled data from 125 firms (848 firm-year observations) over the period 1991–2007, 108 path analyses were conducted to compute five path model output metrics. Data on these metrics were then compared for each of the data conditions by means of analysis of variance. Although significant relationships were generally observed among framework variables, study results differed considerably across three of the four data conditions. The principal take-away from the study is that the impact of marketing activities on firm-level financial performance is likely to be in large part a function of the specific research purpose and methodology employed. As such, the take-away has implications when interpreting value-relevance findings, when constructing theories involving market-based assets, and when designing studies to investigate relationships between marketing and financial performance.

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Notes

  1. Tobin’s q is defined as the “ratio of the market value of the firm to the replacement cost of its tangible assets, including property, plant, equipment, inventory, cash, and investments in stocks and bonds” (Kerin and Sethuraman 1998, p. 261). Market-to-book ratio is defined as the equity capitalization of a firm (share price multiplied by number of shares) divided by book equity (common stock equity, capital surplus, and retained earnings). Varaiya et al. (1987) and Chung and Pruitt (1994) have demonstrated that Tobin’s q and market-to-book ratio are effectively equivalent measures.

  2. As Wang et al. (2009) have observed, a model (framework) “needs not be technically sophisticated as long as its theoretical rationales can be demonstrated straightforwardly and its insights can be illustrated easily” (p. 134). The proposed framework meets these criteria.

  3. Although many studies incorporated control variables, the effects of such variables generally have not been discussed in the cited research. Consequently they are not discussed here.

  4. Note that the number of studies in subcategories may not sum to the total number of studies due to missing information, more than one analysis per study, or differences in the variables investigated in a study.

  5. Note that in reality Financial World data for the period 1991–1996 were based on Interbrand Group’s methodology and data. In 1995 Financial World slightly changed its brand valuation method based on the Interbrand Group (2002) valuation model approach to estimate more accurately and credibly the equity of brands (Meschi 1995). In 1997 Financial World went out of business. Currently Business Week reports Interbrand Group’s brand value estimates.

  6. Observations with brand values greater than $60,000,000,000 or M/B ratios less than −50.00 or greater than 50.00 were excluded after scrutinizing the scatter plot of brand values and M/B ratios.

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Authors and Affiliations

  1. The University of Texas at Austin, Austin, TX, 78713, USA

    Robert A. Peterson

  2. Department of Marketing, Tobin College of Business, St. John’s University, Queens, NY, 11439, USA

    Jaeseok Jeong

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Correspondence to Robert A. Peterson.

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Peterson, R.A., Jeong, J. Exploring the impact of advertising and R&D expenditures on corporate brand value and firm-level financial performance. J. of the Acad. Mark. Sci. 38, 677–690 (2010). https://doi.org/10.1007/s11747-010-0188-3

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