Differential impact of advertising and distribution expenditure on Tobin's Q

Abstract

PurposeThe purpose of this paper is to understand the impact of components of marketing expenditures, i.e. advertising and distribution expenditures on intangible value of firm (measured in terms of Tobin's Q). The relationship is studied in the context of branding approaches (corporate and house of brands) that various firms follow.Design/methodology/approachThe data are collected from databases of Centre for Monitoring Indian Economy (CMIE) and from the web site of National Stock Exchange. Time series regression is performed using SPSS software to test the model.FindingsAdvertising expenditure has a positive impact on the intangible value of the firm and this relationship is stronger for firms following corporate branding than for firms that follow house of brands strategy. Distribution expenditure has negative impact on the intangible value of the firm and this relationship is stronger for firms following corporate branding than for firms that follow house of brands strategy.Research limitations/implicationsSince most of the data retrieved for the analysis were of B2B (business to business) firms, the findings may not be generalized for all firms.Practical implicationsAdvertising expenditure has a diminishing marginal utility in creating intangible value. It would be useful for firms to understand where they are on this continuum and whether their advertising expenditure is giving adequate returns or may be better spent elsewhere.Originality/valueIn the literature, researchers have expressed mixed viewpoints regarding the impact of total marketing spend on intangible value. The marketing expenditures are found to have both positive and negative impact on intangible value, with respect to various contexts. However, the impact of major components of marketing expenditures is not addressed. This gap is addressed in this research paper.

Celebrity endorsements and branding strategies: event study from India

“…Shareholder value comprises both the tangible and intangible value of the firm. In recent times, intangible assets are becoming more salient and significant due to the increased emphasis on value attributed to the firm (Sahay and Pillai, 2009). Rao et al (2004) measured the impact of three different branding strategies (corporate branding, mixed branding and house-of-brands) on Tobin's Q, a measure of intangible value of the firm.…”

“…Chaiken, 1979;Langner and Eisend, 2011;Liu and Brock, 2011;McGuire, 1985), the effect of firm characteristics, especially the effect of branding strategy has not been examined. Prior research has revealed that branding strategy may moderate the impact of advertising expenditure on the intangible value of the firm (Rao et al, 2004;Sahay and Pillai, 2009). Hence, the effectiveness of celebrity endorsements (which are likely to form a significant proportion of a firm's advertising expense) may also depend on the branding strategy adopted by a firm.…”

Management Knowledge Assets: A Review of the Models Used to Measure and Report Intellectual Capital

“…The market capitalisation and intangible value is related, so a high value of Tobin's Q would show a higher value of the intangibles (Sahay & Pillai, 2009). The ratio is a forward-looking measure, indicating market-based views of investor expectations of the firm's future profit potential (Sahay & Pillai, 2009). Stewart (1997) specified that Tobin's Q is not intended to be a measure of IC but it can be a good indicator of IC.…”

Strateji̇k İnsan Kaynaklari Yöneti̇mi̇ Bağlaminda Farkliliklarin Yöneti̇mi̇: Türki̇ye

“…In their study, Luo and Jong (2012: 606) have indicated that advertising expenses both directly and indirectly affect sales and financial values of companies. In this regard, Sahay and Pillai (2009: 77) found that advertising expenses positively affect the market value of companies. Furthermore, efficiency of marketing communications has also a positive effect on the market value of a company (Luo and Jong, 2012: 605).…”

“…In this regard, by the means of forming a main research topic for this paper, it can be claimed that both the advertising expenses and the R & D expenses may affect the market value of a company and its performance as well. In studies conducted on this subject (Luo and Jong, 2012: 606;Joshi and Hanssens, 2010;Chauvin and Hirschey, 1993;Andras and Srinivasan, 2003;Sahay and Pillai, 2009;Peterson and Jeong, 2010;Hirschey and Weygandt 1985: 327), it has seen that either advertising or R & D expenses may have an effect on company performance.…”