The Earnings Effects of Marketing Communication Expenditures During Recessions

Roger C. Graham · Kristina D. Frankenberger

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Marketing and Advertising Strategies Financial Analysis and Corporate Governance Consumer Market Behavior and Pricing

Abstract

This study examines associations between company earnings and marketing communication (i.e., advertising and promotion) expenditures during recessions. Data date to 1971, a period covering five recessionary periods. Using cross-sectional time series analysis, the data reveal that changes in firms' advertising and promotion expenditures are related to changes in firms' current and future earnings, conditional on product classification. In addition, differential effects occur for changes during recessions compared to nonrecessionary periods. Specifically, the link between advertising and promotion spending increases and future earnings is stronger and more immediate during recessions. Decreases in advertising and promotion spending during recessions have a delayed relationship with future earnings.

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References

2001Econometric Analysis of Cross Section and Panel Data 1978Specification Tests in Econometrics 1970EFFICIENT CAPITAL MARKETS: A REVIEW OF THEORY AND EMPIRICAL WORK*1970Efficient Capital Markets: A Review of Theory and Empirical Work 1998Market-Based Assets and Shareholder Value: A Framework for Analysis 1996The capitalization, amortization, and value-relevance of R&D 1999How Advertising Works: What Do We Really Know?1961A Model for Predictive Measurements of Advertising Effectiveness

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