Borrowing from employees to fund marketing: stock-based compensation (SBC) as an internal financing mechanism

This study examines stock-based compensation (SBC) as an internal financing mechanism to fund marketing. Using data from listed firms, we show that marketing expenditures mediate the relationship between SBC and customer satisfaction, and that SBC strengthens the link between customer satisfaction and firm value. SBC not only aligns employee incentives with shareholder interests but also frees cash through deferred wages, enabling sustained marketing investment to improve customer satisfaction. Further analyses reveal a dual-channel mechanism, whereby SBC increases both the level and the effectiveness of marketing, such that firms with higher SBC achieve greater customer satisfaction returns. The results are robust across models using both observed and predicted customer satisfaction scores. By conceptualising employee equity as a source of internal capital, the study also broadens the understanding of how compensation design can support intangible investment under financial constraints. These findings extend the pecking order theory by demonstrating that firms prioritise employee-based internal financing for marketing investments before turning to debt or external equity. Overall, the study highlights the strategic value of integrating compensation policy, marketing investment, and firm value creation, advancing research at the marketing–finance interface.