Myopic marketing and compounded abnormal stock returns of industrial firms: a contingency framework involving cash holdings and strategic emphasis

Purpose Per the myopic marketing management literature, the decrease in marketing investment generates an increase in profit in the short term; however, it fosters a negative effect on firm value in the long term. This association is clear, but it ignores managers’ need to manage cash holding and establish strategic value creation (vs strategic value appropriation) emphasis. Drawing on Peck Order Theory and Resource Based View, the purpose of this study/paper is to analyze the moderating effects of cash holding and strategic value creation. Design/methodology/approach This empirical study uses data from 825 companies over 15 years (3,824 firm-year observations). This study merged three databases, annual accounting data fetched (Compustat), monthly stock prices with earnings-adjusted values taken (University of Chicago’s Center for Research in Security Prices - CRSP) and portfolio data for calculating abnormal (monthly) stock returns (Kenneth French Data Library). Findings The results show that the long-term stock performance when there is myopic marketing management, is lower than when there is no myopic marketing management, stock performance is negative in the short- and long-term for myopic companies with a value creation emphasis and this negative effect becomes positive, in the short and long term, when there is a high volume of cash holding (moderator). Originality/value This study demonstrates that prioritizing innovation investments can generate better influences on stock prices when companies do not engage in myopic management practices when managers need to decide resource allocations between value creation and value appropriation emphases. In other words, managers must consider the cash holding volume and the signs of financial flexibility to react to marketing reduction conditions.