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Myopic Marketing Management: Evidence of the Phenomenon and Its Long-Term Performance Consequences in the SEO Context

Graduate School of Business, Columbia University, 3022 Broadway, Uris Hall, Room 513, New York, New York 10027-6902
School of Business, University of Washington, Box 353200, Seattle, Washington 98195-3200
nm2079{at}columbia.edu
yusho{at}u.washington.edu

Managers often have incentives to artificially inflate current-term earnings by cutting marketing expenditures, even if it comes at the expense of long-term profits. Because investors rely on current-term accounting measures to form expectations of future-term profits, inflating current-term results can lead to enhanced current-term stock price. We present evidence that some firms engage in this type of "myopic marketing management" at the time of a seasoned equity offering (SEO). In particular, a greater proportion of firms than is typical report earnings higher than normal and marketing expenditures lower than normal at the time of their SEO. Although they realize that firms might be undertaking strategies to artificially inflate current-term earnings, the financial markets are not adequately identifying and properly valuing the firms doing so. Our results indicate that myopic firms are able to temporarily inflate their stock market valuation, but in the long run, as the consequences of cutting marketing spending become manifest, they have inferior stock market performance. We propose some actions that might reduce the incentives for myopic behavior.

Key Words: myopic marketing management; marketing strategy; marketing resource allocation; signal jamming; long-term financial performance; abnormal stock returns
History: Received: September 20, 2005;