Flow signals from advertising, research and development expenditures : their impacts on firm value

Pao Yue-kong Library Electronic Theses Database

Flow signals from advertising, research and development expenditures : their impacts on firm value

 

Author: Fong, Lee Wan
Title: Flow signals from advertising, research and development expenditures : their impacts on firm value
Degree: D.B.A.
Year: 2013
Subject: Advertising -- Economic aspects.
Research, Industrial -- Economic aspects.
Business enterprises -- Valuation.
Intangible property -- Valuation.
Hong Kong Polytechnic University -- Dissertations
Department: Faculty of Business
Pages: ix, 172 leaves ; 30 cm
Language: English
InnoPac Record: http://library.polyu.edu.hk/record=b2825632
URI: http://theses.lib.polyu.edu.hk/handle/200/7972
Abstract: The marketing literature has posited that advertising and R&D expenditures as well as resulting marketing intangibles are associated with the financial performances of a firm. Prior marketing studies on the effect of marketing on firm value have mainly focused on the effects of the level of advertising and R&D expenditures on firm value in a specific period. However, the contemporary relationship between advertising and R&D expenditures and firm value provides an incomplete illustration of the marketing-finance interface. In my dissertation, I emphasize the importance of examining several patterns on "how advertising and R&D expenditures have been used in the past." In particular, this dissertation identifies key patterns for historical advertising and R&D expenditures, which I denote as "flow signals from advertising and R&D." Building on the paper of DeKinder and Kohli (2008), I consider displacement, propensity, and reversal for advertising and R&D expenditures as value-relevant flow signals. In addition, I consider firm age and strategic emphasis between advertising and R&D as potential moderating variables and test whether these variables affect the relationship between flow signals and firm value. I measure firm value by using Tobin’s Q and test the proposed hypotheses with a sample of publicly listed US firms across industries between 1995 and 2009. After controlling the accounting and finance measures related to firm value, I found that R&D displacement, advertising, and R&D propensity signals are positively related to firm value, whereas R&D reversal signal negatively affects firm value. I also found that firm age reduces the negative effect of R&D reversal on firm value, whereas strategic emphasis on advertising strengthens the positive effect of advertising propensity on firm value. To the best of my knowledge, this study is the first to investigate the effect of the flow signals from advertising and R&D on the different metrics related to shareholder value across firms. My findings contribute to the marketingfinance literature and help firms' management understand how the advertising and R&D budget should be used across time to create market-based assets for the long-term perspective.

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