Essays on marketing's impact on financial performance
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My dissertation builds upon research at the intersection of marketing and finance by providing managerial insight on three specific aspects of marketing’s impact on financial performance. My first essay shows how marketing reduces a firm’s bankruptcy risk. Prior research has shown that two key marketing assets, advertising assets and R&D assets, increase a firm’s shareholder value. While one might conclude that the impacts of these marketing assets on bankruptcy risk are merely the inverse of their impacts on shareholder value, I argue otherwise and show that market turbulence moderates the impacts of advertising assets and R&D assets on bankruptcy risk but not shareholder value. My second essay shows how firm strategy moderates the impact of advertising on a firm’s financial performance. I hypothesize that advertising should influence shareholder value for a firm with a differentiation strategy because advertising can elaborate the firm’s point of difference into brand equity, thereby building shareholder value. In contrast, advertising cannot build brand equity for a firm with a cost leadership strategy because such a firm has no point of difference on which to build. Identifying differentiators and cost leaders by firms’ reactions to a change in accounting regulations, I confirm my hypotheses: Advertising increases sales for all firms but increases shareholder value more for differentiators than for cost leaders. My third essay shows the financial value of offering trade credit to business customers. The “finance perspective” argues that, since cash flows from a trade credit sale are delayed and vulnerable, trade credit sales should be less valuable than cash sales. I show, however, that this is not the case because the value of a sale is not solely driven by the cash flows from a single transaction – it is driven by the expected future cash flows from all future sales to the customer. Consistent with the “marketing perspective”, which recognizes that offering trade credit also builds relational assets with key business customers, I show that trade credit sales are actually more valuable than cash sales.