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The Chief Marketing Officer Matters!
Abstract
Marketing academics and practitioners alike remain unconvinced about the chief marketing officer's (CMO's) performance implications. Whereas some studies propose that firms benefit financially from having a CMO in the C-suite, other studies conclude that the CMO has little or no effect on firm performance. Accordingly, there have been strong calls for additional academic research regarding the CMO's performance implications. In response to these calls, the authors employ model specifications with varying identifying assumptions (i.e., rich data models, unobserved effects models, instrumental variable models, and panel internal instruments models) and use data from up to 155 publicly traded firms over a 12-year period (2000-2011) to find that firms can indeed expect to benefit financially from having a CMO at the strategy table. Specifically, their findings suggest that the performance (measured in terms of Tobin's q) of the sample firms that employ a CMO is, on average, approximately 15% greater than that of the sample firms that do not employ a CMO. This result is robust to the type of model specification used. Marketing academics and practitioners should find the results intriguing given the existing uncertainty surrounding the CMO's performance implications. The study also contributes to the methodology literature by collating diverse empirical model specifications that can be used to model causal effects with observational data into a coherent and comprehensive framework.
... Nath and Mahajan (2008) and Boyd et al. (2010) show that the CMO does not make a difference in sales growth or firm profitability. Other research such as Homburg et al. (2014) and Germann et al. (2015) shows that CMOs generate more venture capital and better financial performance. ...
... A possible reason is that when a firm experiences more recalls, it is more likely to appoint a CMO in the hope of better managing products and consumer relations. We follow the literature (e.g., Germann et al., 2015) to cope with potential endogeneity in CMO presence with the control function approach. eliminate confounding from multiple recalls. ...
... Therefore, it is necessary to account for the endogeneity in CMO presence when estimating its impact. We follow Germann et al. (2015) to use a control function for identification (Web Appendix C). ...
This paper examines the implications of chief marketing officers (CMOs) when firms experience crisis situations. In the context of product recalls, we analyze CMO impacts from the perspectives of two critical stakeholders—consumers and investors. For consumers, we find that firms with a CMO manage recalls for better consumer protection by issuing recalls earlier and having fewer consumer harm incidents than firms without a CMO. For investors, we find that firm financial value drops significantly more for firms with a CMO than those without a CMO when recall happens. These findings generate a more holistic picture of CMOs in the growing literature on the roles and impacts of marketing leadership. They boost the message that CMOs matter and show the nuanced impacts when firms face crisis.
... Although over the years marketing literature has increasingly recognized the top-down effect of marketing leadership on strategic outcomes, extant research focuses primarily on Chief Marketing Officers (CMOs). For example, Germann et al. (2015) show that firms with a CMO have, on average, 15% higher Tobin's q than firms with no CMO. Similarly, Nath and Mahajan (2011) show that CMOs with additional sales responsibility improve sales growth, while Kim et al. (2016) show a link between CMO equity incentives and shareholder value. ...
... First, our research builds on the recent developments in the marketing literature on the top-down influence of a firm's leadership on strategy and outcomes. To date, the primary focus of marketing leadership research has been its impact on financial performance outcomes (e.g., Germann et al., 2015;Nath & Mahajan, 2011;Whitler et al., 2018). We add to this research by demonstrating the value of MEBMs in fostering innovativeness inputs. ...
... Such an approach is more likely to prioritize a firm's obligation to its stakeholders than an "insideout" perspective that focuses on its operations and existing capabilities, which limits what the firm can achieve to these capabilities. Furthermore, marketers are trained and motivated throughout their careers to identify customers' latent needs and wants and to drive growth by delivering benefits that meet them (Fleit & Morel-Curran, 2012;Germann et al., 2015). MEBMs are thus more likely to emphasize the need to deliver greater value to customers by (1) providing necessary marketing-related knowledge, information, and guidance and (2) monitoring whether the marketing-and customer-related strategies and goals are implemented. ...
Although fostering innovativeness has long been one of the most important concerns for marketing theory and practice, CEOs continue to identify the lack of an innovation culture as one of the main obstacles they must overcome. Corporate culture permeates from the top of the corporate hierarchy. Therefore, the role of the corporate board can be critical for nurturing an innovation culture and thus stimulating innovativeness inputs. As marketing training and orientation emphasize innovation to create customer value and drive growth, marketing-experienced board members (MEBMs) can be particularly instrumental in fostering innovativeness inputs through their direction and counseling. Therefore, in this paper, we investigate whether the marketing expertise and information brought by MEBMs contribute to firm innovativeness inputs. Furthermore, based on the governance literature, we identify three specific CEO job characteristics that influence a CEO’s information processing capacity and ability to implement strategies based on that information, thus enhancing MEBMs’ effectiveness in fostering innovativeness. Analysis of a large representative dataset reveals that marketing expertise brought by MEBMs increases firm innovativeness inputs and that CEO risk-taking incentives, insider CEO, and CEO duality enhance MEBMs’ effectiveness in fostering innovativeness inputs. The results highlight the value of having marketers on the corporate board and the importance of their counsel to CEOs.
... s competing in the same labor market will be under increased pressure to offer a good working environment and vie for the same employee recognition as their peers. At the same time, peers' applications, rather than whether the peers actually win a spot on the Fortune "best place to work" list, should not be related to the profits of the focal firm (Germann, Ebbes, and Grewal. 2015). Further, to ensure that the exclusion restriction is not subject to the leave-one-out critique, we consider all firms that are in the firm's primary threedigit SIC code(s) (Germann, Ebbes, and Grewal 2015). Using these variables, we estimate equation (5) The final sample on which we estimate this selection model includes 33,368 firm-ye ...
... 2015). Further, to ensure that the exclusion restriction is not subject to the leave-one-out critique, we consider all firms that are in the firm's primary threedigit SIC code(s) (Germann, Ebbes, and Grewal 2015). Using these variables, we estimate equation (5) The final sample on which we estimate this selection model includes 33,368 firm-year observations. ...
... The instrument is computed as the average of industry peers' VBD and HBD levels across the firm's primary three-digit SIC codes. This follows Germann, Ebbes, and Grewal's (2015) approach to use peer firms across all of the firm's primary SIC codes listed in the Compustat Segments database. Since most firms are listed in multiple SIC codes and these codes change over time, peer brand differentiation differs across firms and over time, ensuring that the instrument has adequate variability. ...
The primary focus of brand equity research has been on how brand knowledge creates value for firms through customer behavior in product markets. Using archival data and five experiments, this article tests a framework that outlines the unique role brands play in the labor market. The framework distinguishes between vertical and horizontal differentiation and shows that vertical brand differentiation is associated with lower pay, whereas horizontal brand differentiation is associated with higher pay. Employees are also vertically and horizontally differentiated and firms high in horizontal brand differentiation pay more for employees who match their brands’ differentiating characteristics (i.e., brand-relevant complementarities). Results show that these brand-pay relationships have important downstream effects on employee behavior and, consequently, on firm profits. Specifically, leveraging vertical brand differentiation to lower pay represents a false economy because profits are attenuated by negative effects on employee productivity and retention. In contrast, when managers at firms high on horizontal brand differentiation pay more, profits increase via the same mediating employee behaviors. Six firm strategies and investments that influence firm bargaining power in the employee-brand matching process are found to moderate the brand-pay relationship and downstream effects on profits.
... Manchanda et al. 2004, Albers et al. 2010, and assessing the effect of firms strategies on firm performance (e.g. Shaver 1998, Germann et al. 2015, Rutz and Watson 2019. ...
... This approach is described in many places, e.g. Gelman andHill (2007), p. 169, Papies et al. (2017) or Germann et al. (2015). However, it is it is often difficult, expensive or simply impossible to collect data on the omitted variable (e.g. ...
... In addition to the introduction of new methods, this decade also saw a growing number of marketing papers that use multiple methods, sometimes reporting estimates from different methods separately. For instance, Germann et al. (2015) report estimates for the effect of CMO on firm performance using 9 different panel data and IV regression models and observe that the main conclusion remains the same across these models; Shapiro et al. (2021) finds convergence between fixed effects and RD estimates; or Narayan and Kadiyali (2016) use the LIV approach as a robustness check for their (observed) IVs and conclude that the substantive results remain unchanged comparing both methods of endogeneity control. Germann et al. (2015) argue that modeling complex phenomena requires researchers to use a diverse set of models while carefully considering the identifying assumptions underlying these models. ...
... Past research explores the impact of Chief Marketing Officers (CMOs) on firm performance (e.g., Nath and Mahajan, 2008;Germann et al., 2015) and the consequences of marketing expertise at the top management team (TMT) level (Weinzimmer et al., 2003). However, marketing expertise of other board members is rarely investigated (Whitler and Puto, 2020) despite even those board members not specifically responsible for marketing function, still have a legal and fiduciary duty to direct and oversee the operations (including the marketing aspects of operations), so as to protect the shareholders' interests (Whitler et al., 2021). ...
... For instance, while Nath and Mahajan (2008) and Germann et al. (2015) find that the presence of CMO (i.e., marketing expertise at the TMT level) does not affect sales growth, Whitler et al. (2018) report that marketing knowledge and skill at the board level does affect firm performance. In this context, Whitler et al. (2018) show that the number of directors with executive-level marketing experience is positively associated with revenue growth. ...
... In the marketing context, previous research on the performance effects of marketing expertise at the TMT level has shown mixed results, with some studies reporting positive impacts (e.g., Boyd et al., 2010;Germann et al., 2015), no significant effects (e.g., Nath and Mahajan, 2008), and even negative impacts on marketing outcomes and firm performance in certain situations (Nath and Mahajan, 2011). The inconclusive findings suggest that the presence of marketing expertise alone may not be enough. ...
Purpose
This paper aims to combine the agency theory and efficiency wage theory to explore the effects of relative compensation for executive directors with marketing experience on two marketing outcomes (marketing efficiency and market share) and the moderating roles of ownership type (private vs state-owned enterprises) and market concentration in this process.
Design/methodology/approach
A total of 2,753 firm-year observations from Chinese listed companies (from 2010 to 2014) were retrieved from China Stock Market and Accounting Research database and analyzed using firm random-effects with industry, year and region fixed effects.
Findings
Relative compensation has a positive effect on both marketing efficiency and market share, and these effects are moderated by ownership type and market concentration. Specifically, the positive effect of relative compensation on marketing efficiency and market share are stronger for central state-owned enterprises (SOEs) compared to local SOEs and private-owned enterprises but the results are mixed for market concentration.
Research limitations/implications
This study shows that paying higher compensation to the executive directors with marketing experience can enhance marketing performance, but the data does not allow identification of the actual actions taken by these directors for this.
Practical implications
This study highlights the importance of appropriate compensation for directors with marketing experience to motivate them to make better marketing decisions to overcome the challenges posed by market concentration and agency conflicts.
Originality/value
This paper points out the importance of having directors with marketing experience and paying them suitable compensation to motivate them to be more effective.
... In the first stage, we use an auxiliary regression and regress the endogenous variable on all variables in the model that are not correlated with the error term (i.e., the exogenous variables) and an additional instrumental variable (IV). The IV must meet the instrument relevance criterion (i.e., the IV predicts the endogenous variable) and the exclusion restriction (i.e., the IV does not correlate with the error term) (Germann et al., 2015). After fitting the first-stage regression, we compute the fitted residuals (see Web Appendix 5 for all first-stage estimates). ...
... Historical marketaverage capabilities are unlikely to be related to an individual firm's bankruptcy risk and return two years later, after we control for other firm-and industry-level predictors. For a similar instrument, Germann et al. (2015) note that it is unlikely that such an instrument would relate to a focal firm's omitted variables (i.e., those that affect the focal firm's financial performance) because the market (and other firms in the market collectively) either cannot observe or measure the focal firm's omitted variables or cannot act on those variables strategically. Finally, we use a bootstrap approach to approximate the correct standard errors. ...
Financial distress befalls even well-managed firms, many of which find ways to turn around. Hence, it is pertinent to explore how distressed firms recover. Unfortunately, extant research sheds little light on the role of marketing in enabling distressed firms’ turnaround. Using a longitudinal dataset of U.S. firms, we empirically show that when the source of distress is firm-specific, it is marketing capability (as opposed to R&D and operations capabilities) that enables a turnaround. However, when distress is industry-driven, R&D capability is also beneficial. Further, although operations capability and cost-reduction actions do help distressed firms survive, they do not help firms regain financial well-being. Overall, these results highlight the importance of capabilities in the context of distressed firms and have implications for both firm managers and shareholders.
... Given this, we adopt a standard two-stage least squares approach with appropriate instrumental variables as part of our identification strategy to address potential remaining endogeneity. Drawing on the extant literature (Germann et al., 2015;Han et al., 2017), we construct three peer-based instruments, i.e., peers' customer satisfaction, peers' customer loyalty, and peers' customer complaint rate, using the industry average value at time t after excluding the focal firm. ...
... Similar to our main model specification (3), we use the CCR metrics and control variables as near as possible to (but preceding) the start of the "non-crash periods" and the "during periods" discussed above. In line with our discussion for our main models, we continue to employ three peer-based instruments, i.e., peers' customer satisfaction, peers' customer loyalty, and peers' customer complaint rate, using the industry average value at time t after excluding the focal firm (Germann et al., 2015;Han et al., 2017). In this model specification (4), our parameter of interest is β 2 , which captures the difference in the effects of the CCR metrics (de-meaned before creating the interaction terms) on the outcome variables in the non-crash and during-crash periods. ...
Unlabelled:
Do stronger relationships with customers (customer-company relationships [CCR]) help firms better weather economic crises? To answer this question, we examine firm performance during the stock market crashes associated with the two most severe economic crises of the last 15 years-the protracted Great Recession crisis (2008-2009) and the shorter but extreme COVID-19 pandemic crisis (2020). Juxtaposing the predominant expected utility theory perspective with observed deviations in investor behavior during crises, we find that both pre-crash firm-level customer satisfaction and customer loyalty are positively associated with abnormal stock returns and lower idiosyncratic risk during a market crash, while pre-crash firm-level customer complaint rate negatively affects abnormal stock returns and increases idiosyncratic risk. On average, we find that one standard deviation higher CCR is associated with between $0.9 billion and $2.4 billion in market capitalization on an annualized basis. Importantly, we find that these effects are weaker for firms with higher market share during the COVID-19 crash, but not during the Great Recession crash. These results are found to be robust to a variety of alternate model specifications, time periods, sub-samples, accounting for firm strategies during the crises, and endogeneity corrections. When compared to relevant non-crash periods, we also find that such effects are equally strong during the Great Recession crash and even stronger during the COVID-19 pandemic crash. Contributing to both the marketing-finance interface literature and the nascent literature on marketing during economic crises, implications from these findings are provided for researchers, marketing theory, and managers.
Supplementary information:
The online version contains supplementary material available at 10.1007/s11747-023-00947-1.
... The papers found that US e-commerce open innovation is implemented via marketing (Kannan 2017). Several papers made marketing analytics for data-rich environments (Germann et al. 2015;Wedel and Kannan 2016). Regarding some noteworthy types of open innovation beneficial to e-commerce, the theory of ecosystems has been utilized in many research papers (Jacobides et al. 2018) by broadening the locus of value creation (Kapoor 2018). ...
... This specifically features a basic factor model that assumes one factor-other countries' capitalizations-drive the revenue of companies in the US e-commerce sector. This research contributes to studies about the organization of e-commerce open innovation in the USA for other excellence (Germann et al. 2015;Moorman and Day 2016;Wedel and Kannan 2016). This paper also develops ideas of sustainability in marketing research and technological open innovation process in the USA based on value cocreation and can be divided into several types (Iansiti and Levien 2004;Gawer 2014;Chang et al. 2015;Buhalis and Foerste 2015). ...
This research paper analyzes revenue trends in e-commerce, a sector with an annual sales volume of more than 340 billion dollars. The article evaluates, despite a scarcity of data, the effects on e-commerce development of the ubiquitous lockdowns and restriction measures introduced by most countries during the pandemic period. The analysis covers monthly data from January 1996 to February 2021. The research paper analyzes relative changes in the original time series through the autocorrelation function. The objects of this analysis are Amazon and Alibaba, as they are benchmarks in the e-commerce industry. This paper tests the shock effect on the e-commerce companies Alibaba in China and Amazon in the USA, concluding that it is weaker for companies with small market capitalizations. As a result, the effect on estimated e-trade volume in the USA was approximately 35% in 2020. Another evaluation considers fuzzy decision-making methodology. For this purpose, balanced scorecard-based open financial innovation models for the e-commerce industry are weighted with multistepwise weight assessment ratio analysis based on q-rung orthopair fuzzy sets and the golden cut. Within this framework, a detailed analysis of competitors should be made. The paper proves that this situation positively affects the development of successful financial innovation models for the e-commerce industry. Therefore, it may be possible to attract greater attention from e-commerce companies for these financial innovation products.
... Correlations among the control variables are weak to moderate (Ratner 2009) and similar to the results in Jing et al. (2019). 5 Most CEO-and firm-specific control variables correlate with employee satisfaction and financial constraints, providing support for including these variables in the regression analyses (Germann et al. 2015). ...
... Endogenous sample selection bias may result from selecting nonrandom samples, that is, when the cases included in the sample result from an unobserved process (Certo et al. 2016), so we use a Heckman selection model to determine the likelihood of sample selection bias. Following the approach described in Engelen et al. (2022), we construct an instrument from the Glassdoor data based on the average number of reviews from firms in the same industry (Germann et al. 2015). Then we calculate a probit model using the dependent variable with the instrument and all variables from the main model as independent variables as the selection criterion. ...
Our study addresses whether a chief executive officer’s (CEO) personality can mitigate financial constraints’ negative effect on employee satisfaction. We draw on extant research that establishes this negative effect but add an upper echelon’s perspective by examining the potential influence of the CEO’s personality traits. Using a multi-source dataset of 1516 observations of S&P 500 firms, novel measures of employee satisfaction based on Glassdoor reviews, and a machine-learning-based linguistic tool on the Five-Factor Model’s personality traits, our study reveals that a CEO who has a high level of openness to experience and/or a low level of conscientiousness buffers the negative impact of financial constraints on employee satisfaction. Theoretical and practical implications are discussed.
... The instrumental variable in the first-stage selection model is the prevalence of customer references in a supplier's industry (according to the 4-digit standard SIC codes), so it reflects industry peers for each supplier. Industry prevalence, according to prior marketing research (Germann et al., 2015;Whitler et al., 2018), satisfies the requirement for instrument relevance, because supplier firms and their industry peers likely adopt similar marketing approaches, under the influence of common market conditions and expectations. ...
... As Germann et al. (2015) point out, satisfying the exclusion restriction requires ensuring that the instrument does not correlate with two types of potentially omitted variables that may affect a supplier's performance. The first type includes firm-level omitted variables, which often represent intangible, hard-to-observe factors such as a firm's organizational culture. ...
Customer references represent a popular marketing strategy, in which customers of a particular supplier share their prior experiences with other potential buyers. The number of customers featured in a customer reference (i.e., reference breadth) and the richness of information it provides (i.e., reference depth), as design decisions, in turn might influence the financial impact of customer references. Drawing from signaling theory, the authors develop a conceptual framework to understand the impact of customer reference design and the moderating role of trade receivables, which represents a finance-based signal of quality often used in business-to-business markets. Two studies test the model, one focused on investors’ reactions to the design of customer references and another that addresses buyers’ reactions. The results affirm the importance of reference design factors for both investors and buyers and reveal important insights at the marketing–finance interface.
... Since endogeneity may affect the correlation between the sustainability report and Tobin's q, we need to test this hypothesis. We use the instrument-free, control-function approach pioneered by previous examination [89] and recently popularized in the marketing literature to account for selection bias and other potential sources of endogeneity [90]. To account for the possibility of an endogenous regressor in the fixed-effects panel model, we incorporated a residual term into the equation. ...
Voluntary sustainability reporting is becoming more common, as evidenced by the hundreds of organizations that have adopted the Global Reporting Initiative (GRI) standards or similar reporting frameworks within the last decade. This research aims to explore the influence of voluntary sustainability reporting on customer behavior and firm value. Drawing on signaling theory, this paper developed and empirically tested four hypotheses to understand the relationships between the study variables. We collected actual data from the petrochemical companies in Saudi Arabia from 2012 to 2022. Data were analyzed using a fixed-effect panel model. The findings revealed that, in general, sustainability reporting has a negative impact on firm value and customer behavior. Nonetheless, the association between sustainability reporting, firm value, and customer behavior became positive over time. We conclude that sustainability reporting is a costly signal at first but that it ultimately increases firm value as businesses improve their ability to inform stakeholders about sustainability activities and as investors become more adept at assessing report quality. This paper offers several theoretical and managerial implications.
... Specifically, we used the industry's mean value that is widely used (e.g., Chung et al., 2019;Kleis et al., 2012) for each alliance portfolio configuration variable based on level 4 sic codes, as instrumental variables that are outside of our unit of analysis to meet exogeneity conditions (Ullah et al., 2021). The industry's mean is a suitable instrumental variable for two reasons (e.g., Germann et al., 2015): i) the focal firms face similar market conditions in comparison to their peers for operating in the same industry, and ii) the expectations of the focal firms and their peers face similar expectations because we sample our firms from the same stock performance index (S&P 500). ...
We examine how firms configure alliance portfolios-that is, networks of partnering firms-to exchange, share, or codevelop the capabilities they require to engage in digital innovation. We analyze data from 550 U.S. firms and the strategic alliances they formed within and across industrial sectors to study how the configuration of alliance portfolios in terms of size, degree of exploration, internationality, and competition affects the volume and quality of digital patents. We find that alliances appear to be an effective means, yet alliances for digital innovations require a different configuration when compared with alliances for non-digital innovations. Large and explorative alliance portfolios help with the creation of digital innovations while international alliances and alliances involving competitors do not. We discuss the implications of these findings for research on digital innovation and alliances. We also distill practical advice to executives charged with making strategic decisions about inter-firm partnerships.
... Therefore, this table is far from being exhaustive and we underlined only the key packages that treat the endogeneity problem. A detailed look at these implementations illustrates two main points: (1) Controlling for endogeneity should rely on using a diverse set of models carefully considering the identifying assumptions underlying these models (Germann, Ebbes, and Grewal 2015). ...
Endogeneity is a common problem in any causal analysis. It arises when the independence assumption between an explanatory variable and the error in a statistical model is violated. The causes of endogeneity are manifold and include response bias in surveys, omission of important explanatory variables, or simultaneity between explanatory and response variables. Instrumental variable estimation provides a possible solution. However, valid and strong external instruments are difficult to find. Consequently, internal instrumental variable approaches have been proposed to correct for endogeneity without relying on external instruments. The R package REndo implements various internal instrumental variable approaches, i.e., latent instrumental variables estimation (Ebbes, Wedel, Boeckenholt, and Steerneman 2005), higher moments estimation (Lewbel 1997), heteroscedastic error estimation (Lewbel 2012), joint estimation using copula (Park and Gupta 2012) and multilevel generalized method of moments estimation (Kim and Frees 2007). Package usage is illustrated on simulated and real-world data.
... If unobserved decisions by Marvel simultaneously affect comic sales and any of our independent variables (i.e., lead to endogeneity in our independent variables), these decisions are likely also to affect lagged sales. Thus, controlling for lagged sales helps account for time-varying unobserved effects (Germann et al., 2015). ...
Brand alliances are becoming increasingly complex, as marketers have begun to combine not only two but multiple brands to foster spillover effects. A particularly complex brand-alliance strategy is team brands, which combine various brands under a team-brand name. Using data from the Marvel brand universe, we examine contingency factors of sales spillover effects between team brands (e.g., Avengers) and their constituent brands (e.g., Hulk). We investigate the moderating role of key network characteristics, describing the team-brand networks and the constituent brands’ roles within these networks from both a firm perspective (brand-brand networks reflecting managers’ decisions about which constituent brands to combine) and a consumer perspective (brand-association networks reflecting consumers’ team-brand associations). The results show that network characteristics strongly affect spillovers and, more importantly, that their effect depends on both the direction (spillover from constituent brands to team brands or vice versa) and the network (brand-brand vs. brand-association network).
... The Upper Echelons perspective can help understand if REAM can be mitigated based on the choice of CEO and CMO. Though completely understudied in the context of REAM, it is now known that the CMO matters for longterm value creation (e.g., [75]). What is relatively unknown is whether certain characteristics of the CMO might matter as mitigating factors. ...
This manuscript represents a literature synthesis of REal Activity Manipulation research and practices in marketing with the objective of stimulating further research. It provides up-to-date knowledge of REAM from multiple perspectives. Research progress on identification and measurement of REAM, inference of managerial motivations, impact on performance metrics, and mitigating conditions is discussed. This review provides several directions for future research as well, thereby highlighting the research priority of the Marketing Accountability and Standards Board effort to augment the calls on managers to be accountable for marketing spending.
... En la segunda década del siglo XXI, y ante una nueva realidad con la consolidación de las TIC y el mundo global, Germann et al. (2015) plantean la importancia de los jefes de marketing en las empresas, dada la discordancia de opiniones entre los practicantes y académicos del marketing sobre si es indispensable o necesario tener un gerente de marketing en las empresas. En una investigación realizada por estos autores, demostraron cómo el rendimiento de las empresas que tienen un cargo como estos logran aumentos aproximados del 15 % en su desempeño en comparación con las que no tienen un jefe de esta área. ...
Este estudio es un análisis sobre la evolución epistemológica de la escuela de las funciones del marketing, destacada por ser una pionera de la disciplina y trasciende la globalización de mercados y la transformación digital. El estudio es de carácter cienciométrico, descriptivo, longitudinal y retrospectivo, con enfoque cuantitativo, en que se analizaron 744 artículos entre 1953 y 2021 mediante el método Tree of Science (ToS) publicados en Scopus. Los resultados muestran que los conceptos de la escuela de pensamiento de las funciones del marketing se mantienen vigentes y han evolucionado a lo largo del tiempo. Se destacan las perspectivas desde las nuevas realidades empresariales caracterizadas por la globalización y el uso de las tecnologías de la información y de la comunicación (TIC) en el marketing, la influencia de la función de ventas y la adopción de tecnologías disponibles para hacer más eficientes las actividades de marketing en las organizaciones.
... First, we choose a linear two-stage least squares approach (Angrist and Pischke, 2009). Following Germann et al. (2015), we measure the industry average of our original variable board religiosity and regress this instrument on our original independent variable to test its potency. ...
Digital innovation has become an important focus for corporations wishing to provide novel products and services to their customers. To achieve this, firms must maintain a disruptive organisational posture and promote risk-taking behaviours. In contrast, religious executives are generally seen in the literature as risk-averse and endorse conservative values, such as traditionalism, security, and conformity. In an analysis of large U.S. firms between 2010 and 2015 and using a novel measure for the religiosity of board directors, we find that companies with higher proportions of religious board directors file fewer digital patents and receive fewer citations on their digital patents. Moreover, this study establishes firms’ technological and religious environments as relevant boundary conditions. We contribute to the innovation management literature by introducing board religiosity as an antecedent to digital patenting activities in large firms and by establishing leisure activities as an indicator of the religiosity of executives. In addition, this study offers relevant organisational policy implications with respect to diversity initiatives and board decision-making.
... For instance, Luo et al. (2012) show how CEOs' corporate actions to build customer relations affects customer satisfaction. Other studies examine the relationship between CMO presence and various measures of firm performance (Boyd et al., 2010;Germann et al., 2015;Nath and Bharadwaj, 2020), whereas others link CMO/CEO or TMT characteristics to firm-related outcomes (You et al., 2020) or consider how CMO presence influences firms' marketing-related decisions (Mintz and Currim, 2013). ...
Purpose
This paper aims to investigate the effect of top management’s customer interactions (TMCI) on customer satisfaction. This study argues that TMCI’s overall relationship with customer satisfaction follows an inverted-U shape due to its positive and disruptive effects on the customer relationship efforts of frontline service/sales employees (FSEs). This paper further investigates the frontline competence of both FSEs and the top management team (TMT) as moderators of the impact of TMCI on customer satisfaction.
Design/methodology/approach
The conceptual model was tested empirically using data from managers, frontline employees and customers of microfinance firms. A multilevel structural equation modeling approach was used to test the hypothesized model.
Findings
The results show that TMCI has a curvilinear relationship with customer satisfaction. The results also show that frontline employees’ collective efficacy attenuates this relationship by shifting the turning point of the curvilinear effect to the right. Furthermore, TMT frontline competence amplifies both the positive and negative effects of TMCI on customer satisfaction.
Research limitations/implications
This study advances knowledge on the effects of TMCI on customer satisfaction and highlights the nuanced relationship between top management involvement and indicators of firm performance.
Practical implications
The findings show the importance of considering the frontline competence of both top management and frontline employees when encouraging TMCI in organizations.
Originality/value
To the best of the author’s knowledge, this study is one of the first to examine TMCI’s direct impact on customer satisfaction and propose the frontline competence of both top management and frontline employees as boundary conditions on this relationship.
... As a first safeguard, Model 1 controls for seasonality, holiday effects, lagged brand sales, competitor marketing variables, and a trend. This rich data approach (through observed covariates; see Germann, Ebbes, and Grewal 2015) is a first line of defense against longitudinal endogeneity. ...
The field's knowledge of marketing-mix elasticities is largely restricted to developed countries in the North-Atlantic region, even though other parts of the world-especially the Indo-Pacific Rim region-have become economic powerhouses. To better allocate marketing budgets, firms need to have information about marketing-mix elasticities for countries outside the North-Atlantic region. The authors use data covering over 1,600 brands from 14 product categories collected in 7 developed and 7 emerging Indo-Pacific Rim countries across more than 10 years to estimate marketing elasticities for line length, price, and distribution and examine which brand, category, and country factors influence these elasticities. Averaged across brands, categories, and countries , line-length elasticity is .459, price elasticity is −.422, and distribution elasticity is .368, but with substantial variation across brands, categories, and countries. Contrary to what has been suggested in previous research, the authors find no systematic differences in marketing responsiveness between emerging and developed economies. Instead, the key country-level factor driving elasticities is societal stratification, with Hofstede's measure of power inequality (power distance) as its cultural manifestation and income inequality as its economic manifestation. As the effects of virtually all brand, category, and country factors differ across the three marketing-mix instruments, the field needs new theorizing that is contingent on the marketing-mix instrument studied.
... Fourth, to account for firm-specific, time-varying omitted variables and their effects, we ran unobserved effects models by including prior-year NV profitability (i.e., the performance of the NV at t -1) into the model (Germann et al., 2015). In the main-effects model (0.33, p < 0.01) and moderating-effects models (between 0.33 and 0.35, all p < 0.01), prior-year NV profitability has a significant effect on NV profitability. ...
Although marketing activities are vital for new ventures (NVs) to ensure growth and survival, previous research is silent on how to organize them in firms’ infancy. The entrepreneurship literature focuses on which marketing activities to perform in NVs but not on how to organize these activities, whereas the marketing literature concentrates on how to organize marketing activities in established firms but not in NVs, which face specific opportunities and challenges in their early stage of development. This article aims to tackle this research gap by examining marketing’s role within NVs’ organization. Drawing on in-depth interviews with managers, we identify two key organizational dimensions: marketing’s dispersion (related to the proliferation and, thus, wide anchoring of marketing responsibilities) and marketing’s structuration (related to the manifestation and, thus, deep anchoring of marketing responsibilities). Through a field survey and archival data, we show that marketing’s dispersion enhances NV profitability, while marketing’s structuration decreases it, and that with increasing marketing influence (i.e., power of marketing actors) in NVs and NV maturity (i.e., age and size), this diametrical pattern of effects becomes less pronounced. Overall, the findings provide novel theoretical and practical insights into the organizational design of marketing in firms’ infancy.
... The instrumental variables in 2SLS should be highly correlated with the endogenous variables (meet the relevance criteria) but have no direct effect on the dependent variable (the exclusion criteria). We follow the established practice in marketing (e.g., Germann et al., 2015) to instrument royalty rate, advertising intensity, ROA, and trade credit provided with the industry averages of these measures in the given, year excluding the focal firm, with industry defined at 4-digit SIC level. The proposed instruments are deemed appropriate as they meet the relevance criterion. ...
Unlabelled:
Drawing on agency theory and transaction cost analysis, this study investigates the impact of refranchising and buybacks of downstream retail units by franchising firms on shareholder value (i.e., stock returns). It further evaluates the contingency role of firm and industry factors in shaping this impact. An event study analysis over the years 2001-2020 confirms that both refranchising and buybacks positively affect stock returns. However, notable impact differences emerge between the two types of strategic decisions. For refranchising, firms with lower royalty rates, smaller returns-on-assets (ROA), and higher trade credit provided generate higher stock returns. Whereas, for buybacks, firms with higher royalty rates derive more value in stock markets. Analysis further shows that investors judge refranchising (buybacks) less (more) favorably in munificent industries, but industry dynamism has no effect on the stock returns generated from these moves. Together, the study offers important implications for franchising theory and retail practice in marketing.
Supplementary information:
The online version contains supplementary material available at 10.1007/s11747-022-00921-3.
... We employed the control function approach for endogeneity correction (Petrin and Train 2010). We constructed instruments for endogenous variables using averages of similar (peer) hospitals' buying group governance efforts (Germann, Ebbes, and Grewal 2015). To do so, we matched each hospital by the market position of its buying groups and hospital size and used the k-nearest neighbor algorithm to find the three most similar hospitals. ...
This paper examines the impact of business-to-business (B2B) buying groups on buyer-supplier relationships. The authors outline two distinct initiatives — monitoring and community building — through which buying groups help govern buyer–supplier exchange and impact supplier performance toward buyers. Two boundary conditions are identified for the performance efficacy of the buying group's governance efforts, namely, the buyer's own governance of the supplier and the dependence relations among the focal parties. Analyses using two-wave primary data collected from the U.S. healthcare sector and replications using secondary outcomes suggest support for the proposed framework. A conjoint experiment is conducted to further enhance the generalizability of the findings. We find that a buying group's monitoring of suppliers enhances supplier performance both by itself and with increasing supplier monitoring by the buyer firm. Further, the supplier’s dependence on the buying group and the buyer’s dependence on the supplier, both sharpen the efficacy of the buying group’s monitoring program. However, the performance effects of community building are weakened as the buyer–supplier relationship becomes stronger and as the buyer grows more dependent on the supplier. The paper thus uncovers novel interplays between B2B buying groups and B2B dyads, and documents their consequences for firm performance.
... We use executives' financial educational background weighted by manager power and executives' financial position experience weighted by power as alternative measures. As many studies emphasize the CEO's role in formulating corporate strategies (Germann et al., 2015;Nath & Mahajan, 2011), this study also uses the CEO's professional financial, educational, and CFO experience as alternative measures. ...
This study investigates how executives' financial experience (EFE) impacts myopic marketing management (MMM) from a myopic loss aversion (MLA) perspective and ways to mitigate the strategic bias induced by personal cognitive bias. It discovers that executives with financial sector working experience and educational experience are positively associated with a propensity toward MLA, which positively impacts MMM. By introducing compensation incentives, capital market, and performance pressures as moderators, this study reveals positive moderating impacts and identifies the theoretical mechanism of MLA. Finally, it explores debiasing strategies and finds that the myopic marketing strategy caused by the MLA from executives with financial experience, can be corrected by equity incentives, the top management team's marketing power, and marketing capabilities. These findings contribute to the current literature on formulating marketing strategies and MMM. They also provide expanded implications from the MLA perspective while integrating behavioral theory into marketing strategies and offer some managerial suggestions.
... In each of the first-stage regressions for alliance portfolio exploration and exploitation, we use the corresponding mean level of the portfolio characteristic across all firms excluding the focal firm j, lagged one year as the instrument (Antia et al., 2017). We expect firms to imitate other firms in the industry in their alliance portfolio decisions (Germann et al., 2015). The industry-level mean portfolio characteristic (exploration and exploitation) is likely to affect the focal firm's alliance portfolio, but not on the performance of one individual R&D project. ...
This research examines the effects of alliance portfolios-the collection of alliances a firm undertakes-on joint R&D project performance. Drawing on the exploration-exploitation framework, we examine how alliance portfolio exploration (alliances across product-markets) and portfolio exploitation (alliances within product-markets) influence alliance partners' R&D projects. Moreover, we conceptualize alliance portfolio ambidexterity as a balanced portfolio of alliances across and within product-markets, and examine its effect on project performance. Finally, we hypothesize how factors at two different levels-alliance type (scale or link), and network density-moderate the relationships between firms' alliance portfolios and performance. We collect data on nearly 600 alliances over 12 years and find that alliance portfolio exploration and exploitation increase joint R&D project performance, and that alliance portfolio ambidexterity enhances performance to a greater extent. We also find that both scale alliances and network density reinforce the relationship between alliance portfolio exploration and project performance, and they diminish the relationship between alliance portfolio exploitation and performance.
The healthcare sector is one of the areas in which service design can make an important contribution. This paper presents the ongoing results of joint research between Politecnico di Milano and Northeastern University, which aims to investigate patient-centered solutions and processes through a systemic perspective. In particular, the article proposes a study on the definitional evolution of the term patient-centeredness and a methodological approach to investigate patient-centricity through different levels that include solutions, the system of actors involved, and the role of patients. 6 exemplary cases from Italy and the USA are introduced to convey the complexity of the solutions and the related system, as well as the similarities and differences between the two contexts. The paper concludes by outlining the subsequent developments of the research, together with the criticalities that emerged, contributing to the ongoing debate on the transformative role of service design in complex service systems.
Purpose
This study aims to investigate the contextual challenges of emergency Web-enabled teaching from instructors’ point of view and their future preference for online education.
Design/methodology/approach
A total of 165 instructors from various public and private universities and university colleges in Malaysia participated in this online survey. Data were analyzed using multiple regression.
Findings
The significant challenges for future preference for online education in terms of their relative importance were supporting learners, effectiveness, disadvantages and advantages of emergency Web-enabled teaching.
Originality/value
This study discusses theoretical, practical and public policy implications for the future of teaching in higher education due to the COVID-19 public health emergency.
Online consumer reviews, as a major source of information and influence, are of great interest to marketing researchers and practitioners. This study investigates the effects of linguistic coordination on perceived review quality. Drawing on the elaboration likelihood model, the authors theorize that two types of linguistic coordination—topic matching (semantic component) and language style matching (lexical component)—have profound effects on perceived review quality. Utilizing natural language processing tools and a novel clustering technique to measure matching, empirical analyses based on an IMDb data set support the positive direct effects of both types of matching. Moreover, the authors find that there is a negative interaction between topic matching and language style matching in affecting perceived review quality. The findings contribute to the understanding of online review quality, and the application of natural language processing enriches the methodological tool kit available to researchers.
Firms often use crowdsourcing contests to develop marketing ideas and solutions. Despite the prevalence—and unique aspects—of marketing ideation crowdsourcing contests (MICCs), there has been little examination of these contests’ shareholder wealth implications. Adopting a signaling perspective, the authors conduct an event study of 508 MICC announcements and find that they are associated with higher returns, but also higher idiosyncratic risk, indicating that investors hold a mixed view of such contests. Further, the authors consider how contest design factors and firm marketing resources may signal the cultivation of intellectual and relational market-based assets to shape their stock market impact, providing firms guidance to better design their MICCs. Specifically, they find that returns are enhanced when firms use professional (vs. general public) contests, specifically scoped contests, and contests using crowd judging (vs. expert panels), and for firms with stronger marketing capabilities. However, brand factors have mixed effects on returns, with a brand's relevant stature having a positive effect and its energized differentiation having a negative effect on returns. Product MICCs and generally scoped contests heighten the negative effects on risk, whereas marketing resources have no impact. Results offer implications for practitioners, including the finding that many MICC design choices commonly used in practice (i.e., general public contests and expert panels) are viewed less favorably by investors.
Strategic emphasis is a critical decision reflecting a firm's relative proclivity toward value creation versus value appropriation. Despite the increasing role of the board in setting the strategic priorities of firms, there is a dearth of research examining board‐level influences on strategic emphasis. Drawing on the cognitive perspective of corporate governance, we posit that exposure to external information via board interlocks provides competing incentives to pursue value creation and value appropriation strategies. We hypothesize that political ideological diversity among directors facilitates the utilization of external information for novel purposes, thus increasing firms' value creation focus. Combining data on directors' political ideologies with network analysis, we test these hypotheses in 584 large U.S. firms between 2000 and 2018. We find that political ideological diversity influences strategic emphasis both directly and in interaction with board interlock network centrality: politically ideological diverse boards exhibit a greater focus on value creation, and this effect is strengthened when the board is well connected to others. These results have implications for the director selection process, and for executives advocating for value creation strategies and the requisite R&D investments under differing conditions of board composition and information exposure.
The digital economy and ecological environment are two major issues related to high-quality economic development. Scholars have not yet reached a unified conclusion about the link between the digital economy and pollution emissions, and the impact mechanism of the former on the latter needs further study. Using data from 278 Chinese cities from 2010 to 2019, this research employs coupling coordination analysis, fixed effect analysis and mediation analysis to examine the heterogeneous impact mechanisms of the expansion of the digital economy on urban pollution reduction from many angles. It discovers that, first, the growth of the digital economy has decreased the discharge of urban pollutants overall. Second, the impact mechanisms of the digital economy are heterogeneous. From a regional perspective, industrial structure supererogation plays an intermediary role in the relationship between digital economy development and pollution reduction in the eastern and central regions, but the mediating effect is not significant in the western and northeastern regions. In terms of the city development level, industrial structure supererogation has significantly mediated the relationship between the growth of the digital economy and the reduction of pollution in first- and second-tier cities, but this mediating effect is not significant in third-tier and other cities. Third, the above conclusions are still valid after the robustness test is carried out using instrumental variable estimation, replacement of the estimation method, and replacement of explanatory variables. This study is a useful contribution to research on the effects of the digital economy and the factors influencing pollution reduction. The results advance the study of the digital economy and also have practical implications for improving China's ecological environment and fostering high-quality economic growth. Finally, we provide policy suggestions for the coordinated promotion of the digital economy's development, industrial structure supererogation and environmental pollution reduction.
Firms have appointed a significant number of female Chief Marketing Officers (CMOs) over the last decade. However, the question of how female CMOs differ from their male counterparts is yet to be examined. This research uses a multi-method approach to examine when and why female CMOs differ in marketing decisions from their male counterparts. In Study 1, the authors use secondary data to examine the effect of CMO gender on multiple marketing decisions and find that female CMOs make less risky decisions. Further, the authors find evidence that female CMOs’ risk-taking behavior is contingent on structural, organizational, and environmental factors (CEO Gender, relative firm performance, and demand uncertainty). In Study 2, the authors employ the MarkStrat simulation, in which participants assume the role of CMO, to test the main finding from Study 1 in a controlled setting and provide evidence for the differential effect of gender on radical vs. incremental new product introductions. In Study 3, the authors examine survey data to find evidence for the underlying mechanisms (over-confidence, failure avoidance orientation, and scrutiny) behind female CMOs’ lesser risk-taking behavior.
Increased consumer demand for healthier product options and looming regulation have prompted many consumer goods brands to adjust the amount of sugar content in their product lines, including adding products with reduced sugar content or smaller package sizes. Even as brands adopt such practices, little guidance exists for how they should do so to protect or enhance their brand performance. This paper studies whether and when sugar reduction strategies affect sales. The analysis of almost 130,000 product additions by nearly 80 brands over 11 years in the U.S. soda category shows that, on average, sugar content reductions perform comparable to similar, non-reduced products, while smaller package sizes perform better. Importantly, these effects depend substantially on product labeling, branding, and packaging decisions. By accounting for these contingent effects, this study establishes win–win conditions, in which brands realize higher volume sales while category-level sugar sales decrease. In doing so, our study sheds light on how marketing can bridge brands’ sales objective with society’s health focus—doing well and doing good simultaneously.
Mobile payment technology platforms are quickly gaining popularity. Despite this growth, academic research offers little insight into how adopting mobile payment technology impacts firm value. Further, extant studies are silent on the factors that determine the outcome of pursuing this strategy. Results from an event study of 152 announcements of mobile payments show an increase in firm value by an average of 1.03%, highlighting their effectiveness. Further analysis reveals characteristics of mobile payments that can augment this change in firm value. Specifically, positive firm value accrues when retailers promote the use of mobile payments to their customers. The authors also find that, compared with retailers whose target market comprises older customers, retailers targeting younger customers benefit more from adopting mobile payments. Finally, this study reveals an early-mover advantage, which is maximized in conjunction with an expansive, national rollout strategy. In fact, although a national rollout can be more beneficial early, the results show that for retailers that adopt mobile payments later, there is no difference between using an expansive rollout or a more limited, phased rollout strategy.
It is common in moderation analysis that at least one of the target moderation variables is latent and measured with measurement error. This article compares six methods for latent moderation analysis: multigroup, means, corrected means, factor scores, product indicators, and latent product. It reviews their use in marketing research, describes their assumptions, and compares their performance with Monte Carlo simulations. Several recommendations follow from the results. First, although the means method is the most frequently used method in the review (95% of articles), it should only be used when reliabilities of the moderation variables are close to 1, which is rare. Then, all methods except the multigroup method perform similarly well. Second, the results support using the factor scores method and latent product method when reliabilities are smaller than 1. These methods perform best with parameter and standard error bias less than or equal to 5% under most investigated conditions. Third, specific settings can warrant using the multigroup method (if the moderator is discrete), the corrected means method (if moderation variables are single indicators), and the product indicators method (if indicators are nonnormally distributed). Practical guidelines and sample code for four statistical platforms (SPSS, Stata, R, and Mplus) are provided.
Prior
literature does not provide a clear prediction of how executive confidence affects the degree to which a firm engages in “myopic marketing management,” the tendency to decrease current marketing spending to mitigate any potential earnings shortfall. We propose that highly confident CEOs are more likely to cut marketing spending to raise current earnings numbers because they believe in their ability to generate high future firm earnings that can cover the long-term losses arising from their current short-term actions. The effect is heightened when the board of directors is more independent and monitors more, but attenuated if CMOs are more confident and thus are better able to convince their CEOs and boards of directors to support continued investments in marketing. The moderating impact of CMO confidence is proposed to be stronger as the CMO becomes more powerful. Using secondary data from a broad cross-section of firms, we provide robust empirical support for our model. Our results highlight situations in which CMOs need to be wary of cuts to their marketing budget, and also provide a potential mechanism through which marketers can protect their budget in the presence of highly confident CEOs—through their own confidence levels.
The marketing literature has long recognized the positive relationship between advertising spending and sales at the firm level. However, this literature overlooks country-level heterogeneity of both advertising channel and retail format evolution, limiting the global managers’ understanding of the heterogeneity and evolution of advertising channels and retail formats across country markets and therefore the ability to effectively formulate a global marketing strategy that adjusts for such differences. In this work, we call for a glocal approach when considering the association between ad spend by media channels and retail format sales at the country level, accounting for country institutional environments. We explore this topic using a 29-country, seven-year unbalanced panel dataset. We find that there is substantive heterogeneity in ad spend by media channels and retail format sales across countries. Further, we find that changes in ad spend in specific media channels are positively associated with changes in related retail format sales at the country level whereas the associations between changes in ad spend in media channels with unrelated retail format sales are more nuanced. The findings are informative to international marketing managers in navigating the complex and ever-evolving retail landscape and highlight the importance of thinking globally while acting locally.
The literature has discussed how corporate social performance (CSP) may influence corporate financial performance (CFP). However, it is unclear whether stakeholder expectancy and subsequent stakeholder (dis)satisfaction may influence the CSP-CFP link. Using industrial average CSP as the proxy of stakeholder expectancy, we distinguish firms into industry CSP leaders (i.e., firms with CSP superior to industrial average CSP) and laggards (i.e., firms with CSP inferior to industrial average CSP). We ask whether industry CSP leaders and laggards experience asymmetric gains (i.e., increases in CFP) or pains (i.e., decreases in CFP) when having symmetric deviations from the industrial average CSP. We then theoretically draw on stakeholder theory and expectancy disconfirmation theory (EDT), and empirically conduct a series of analyses based on a longitudinal dataset. The findings show asymmetric CSP-CFP relationships for industry CSP leaders and laggards. The contributions and implications of this study are discussed.
Firms develop and deploy selling capability to create and sustain a competitive
advantage. Previous studies have focused predominantly on static, input-based selling capability, paying little attention to dynamic, efficiency-focused selling capability. This treatise reconceptualizes selling capability from a dynamic and efficiency (input–output) perspective and investigates the effect of selling capability on firm value with the contingent role of internal [i.e. relative strategic emphasis (SE)] and external (i.e. market volatility and technological volatility) factors. Using data from 341 US-based manufacturing and service firms over the period 2014–2020 and an endogeneity-robust dynamic estimation technique, the authors find that selling capability positively affects firm value, and firms with a relative SE on value appropriation (i.e. advertising) as opposed to value creation (i.e. R&D) reap more rewards from selling capability. That is, relative SE positively moderates the nexus between selling capability and firm value. Furthermore, the results demonstrate that the interactive effect of selling capability and relative SE is weaker when an industry experiences higher market volatility but stronger when technological volatility is higher. Overall, this study demonstrates that a firm’s selling capability should be managed dynamically in light of its (internal) relative SE and (external) environmental conditions. The results are robust to several additional sensitivity analyses.
Although the merits of maintaining a market orientation have been extensively discussed in the literature, studies examining the empirical link between market orientation and performance have shown mixed results. The authors explore the relative performance effects of various dimensions of market orientation using a longitudinal approach based on letters to shareholders in corporate annual reports. Furthermore, the authors examine the relative effects of alternative strategic orientations that reflect different managerial priorities for the firm. The authors also extend previous work by considering the mediating effects of organizational learning and innovativeness on the orientation-performance relationship. The results show that firms possessing higher levels of competitor orientation, national brand focus, and selling orientation exhibit superior performance.
Recent studies have shown evidence of a positive relationship between market orientation and performance. However, some scholars have suggested that competitive environment could moderate this relationship. The authors investigate how competitive environment affects the strength of the market orientation-performance relationship and whether it affects the focus of the external emphasis within a market orientation-that is, a greater emphasis on customer analysis relative to competitor analysis, or vice versa, within a given magnitude of market orientation. Their results provide very limited support for a moderator role for competitive environment on the market orientation-performance relationship. The benefits of a market orientation are long term though environmental conditions are often transient, and thus being market oriented is cost-effective in spite of any possible short-term moderating effects of the environment.
In this article, the authors develop a theoretical framework that specifies how customer satisfaction affects future customer behavior and, in turn, the level, timing, and risk of future cash flows. Empirically, they find a positive association between customer satisfaction and shareholder value. They also find significant variation in the association across industries and firms.
The authors develop a conceptual framework of the marketing-finance interface and discuss its implications for the theory and practice of marketing. The framework proposes that marketing is concerned with the task of developing and managing market-based assets, or assets that arise from the commingling of the firm with entities in its external environment. Examples of market-based assets include customer relationships, channel relationships, and partner relationships. Market-based assets, in turn, increase shareholder value by accelerating and enhancing cash flows, lowering the volatility and vulnerability of cash flows, and increasing the residual value of cash flows. ABSTRACT FROM AUTHOR Copyright of Journal of Marketing is the property of American Marketing Association and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts)
Marketing executives are being urged to speak in the language of finance to gain internal support for marketing initiatives. Responding to this call, the authors examine the impact of a firm's advertising and its research and development (R&D) on the systematic risk of its stock, a key metric for publicly listed firms. They hypothesize that a firm's advertising and R&D expenditures create intangible assets that insulate it from stock market changes, lowering its systematic risk. They test the hypotheses using a panel data on 644 publicly listed firms between 1979 and 2001, consisting of five-year moving windows. They scale the firm's advertising and R&D expenditures by its sales. After controlling for factors that accounting and finance researchers have shown to be associated with systematic risk, the authors find that advertising/sales and R&D/sales lower a firm's systematic risk. The article's findings extend prior research that has focused primarily on the effect of marketing initiatives on performance metrics without consideration of systematic risk. For practice, the ability of advertising and R&D to reduce systematic risk highlights the multifaceted implications of advertising and research programs. The article's findings may surprise senior management, some of whom are skeptical of the financial accountability of advertising programs.
Recent discussions in academic literature and the business press often paint an unflattering picture of the contributions of chief marketing officers (CMOs) to the financial value of their firms. Some even suggest that CMOs, despite being the marketing leaders in firms, have little or no effect on firm performance. However, formal empirical research on the impact of CMOs on financial performance is scarce. This article presents conceptual arguments and empirical evidence about this controversial issue. The authors suggest that CMOs are far from irrelevant to the financial performance of firms. However, the impact of CMOs on financial performance is highly contingent on the managerial discretion available to them. Focusing on the role of customer power in limiting the managerial discretion available to CMOs, this study identifies individual and firm-specific conditions in which CMOs contribute more or less to firm value. Analyses of abnormal stock returns associated with the appointment of CMOs provide support for the hypothesized effects of customer power and managerial discretion.
Whenever a recession occurs, there is a heated dialog among marketing academics and practitioners about the appropriate levels of marketing spending. In this article, the authors investigate whether firms should spend more on research and development (R&D) and advertising in recessions. They propose that the effects of changes in firms' R&D and advertising spending in recessions on profits and stock returns are contingent on their market share, financial leverage, and product-market profile (i.e., business-to-consumer goods, business-to-business services, business-to-business goods, or business-to-consumer services). They estimate the model using a panel of more than 10,000 firm-years of publicly listed U.S. firms from 1969 to 2008, during which there were seven recessions. Their results support the contingency approach. The authors compute the marginal effects, which show how the effects of changes in R&D and advertising spending in recessions vary across firms. The marginal effects provide evidence of inadequate spending (e.g., 98% of business-to-consumer goods firms underspend on R&D), proactivity (e.g., 96% of business-to-business services firms are at approximately the right levels on advertising), and excess spending (e.g., 92% of business-to-consumer services firms overspend on advertising). Using the authors' approach and publicly available data, managers can estimate the effects of their firms' and competitors' R&D and advertising spending on profits and stock returns in recessions.
Firm valuation has been an important domain of interest for finance. Most financial models, however, do not include customer-related metrics in this process. Studies in marketing have found that one particular customer metric, customer satisfaction, improves the ability to predict future cash flows, long-term financial measures, stock performance, and shareholder value. Most of these studies, however, predominantly employ models that are not directly used in finance practice. This paper extends existing literature by examining the impact of customer satisfaction on firm valuation by employing multiples and risk adjusted abnormal return models borrowed directly from the practice of finance. The data utilized includes 3,600 quarter-firm observations from the ACSI, COMPUSTAT, and CRSP databases from 1996 to 2006. The results indicate that purchasing a portfolio of stocks consisting of firms with high levels and positive changes in customer satisfaction will outperform the other three possible portfolio combinations (low levels and negative changes, low levels and positive changes, and high levels and negative changes in customer satisfaction) along with the S&P 500. Initially the stock market undervalues positive satisfaction information, yet the market adjusts in the long-term.
Over the last decade, a number of studies have argued that customer satisfaction has high relevance for financial markets because it has a significant impact on stock returns. Little attention, however, is directed at understanding the impact of customer satisfaction on the risk of stock returns. Literature in finance suggests that investors that judge performance only in terms of returns will place more resources than warranted in risky opportunities, forgo profitable opportunities, and apply misguided performance evaluations. Accordingly, this study develops, tests, and finds empirical support for the hypotheses that positive change (i.e., improvement) in customer satisfaction result in negative changes (i.e., reduction) in overall and downside systematic and idiosyncratic risk. Using a panel data sample of publicly traded US firms and satisfaction data from the American Customer Satisfaction Index (ACSI), the study demonstrates that investments in customer satisfaction insulate a firm's stock returns from market movements (overall and downside systematic risk) and lower the volatility of its stock returns (overall and downside idiosyncratic risk). The results are robust to alternative measures of risk, model specifications, and concerns related to sample composition criteria raised in some recent studies. The results, therefore, indicate that customer satisfaction is a metric that provides valuable information to financial markets. The robust impact of customer satisfaction on stock returns risk, therefore, suggests that it might be useful for firms to disclose their customer satisfaction scores in their annual report to shareholders.
Not all firms choose to have a chief marketing officer (CMO) in their top management teams (TMTs). This research investigates factors associated with this choice and whether CMO presence/absence in the face of these factors affects firm performance. Findings based on a multi-industry sample of 167 firms over a five-year period (2000–2004) show that innovation, differentiation, branding strategy, diversification, TMT functional experience in marketing, and the chief executive officer being an outsider are associated with the likelihood of CMO presence in the TMT. Furthermore, the authors find that CMO presence in the TMT has neither a positive nor a negative impact on firm performance. The authors discuss the implications of these findings for theory and practice.
Marketing executives are being urged to speak in the language of finance to gain internal support for marketing initiatives. Responding to this call, the authors examine the impact of a firm's advertising and its research and development (R&D) on the systematic risk of its stock, a key metric for publicly listed firms. They hypothesize that a firm's advertising and R&D expenditures create intangible assets that insulate it from stock market changes, lowering its systematic risk. They test the hypotheses using a panel data on 644 publicly listed firms between 1979 and 2001, consisting of five-year moving windows. They scale the firm's advertising and R&D expenditures by its sales. After controlling for factors that accounting and finance researchers have shown to be associated with systematic risk, the authors find that advertising/sales and R&D/sales lower a firm's systematic risk. The article's findings extend prior research that has focused primarily on the effect of marketing initiatives on performance metrics without consideration of systematic risk. For practice, the ability of advertising and R&D to reduce systematic risk highlights the multifaceted implications of advertising and research programs. The article's findings may surprise senior management, some of whom are skeptical of the financial accountability of advertising programs.
Some chief marketing officers (CMOs) are more powerful than others. The authors investigate the drivers and outcomes of this phenomenon using a hierarchical measure of power for the CMO in the top management team (TMT), or corporate executive suite (C-suite). Theory suggests that CMO power in the TMT should increase with (1) the CMO's control over resources required by other executives in the C-suite, (2) the criticality and (3) effective provision of these resources, and (4) the nonsubstitutability and (5) centrality of the CMO. The authors use these rationales to identify factors that affect CMO power in public U.S. firms with the CMO position for at least two of the five observed years. The findings show that CMO power increases when the CMO has the additional responsibility of sales, as TMT marketing experience decreases, and as firms with low levels of TMT marketing experience pursue innovation. Furthermore, CMO power in highly divisionalized TMTs and the CMO's additional responsibility of sales improve sales growth, but CMO power in firms that are unrelated diversifiers reduces profitability. The authors discuss the theoretical and practical implications of these results for marketing's influence in the C-suite and the firm, the integration of marketing and sales, and market orientation.
Recent studies have shown evidence of a positive relationship between market orientation and performance. However, some scholars have suggested that competitive environment could moderate this relationship. The authors investigate how competitive environment affects the strength of the market orientation-performance relationship and whether it affects the focus of the external emphasis within a market orientation—that is, a greater emphasis on customer analysis relative to competitor analysis, or vice versa, within a given magnitude of market orientation. Their results provide very limited support for a moderator role for competitive environment on the market orientation-performance relationship. The benefits of a market orientation are long term though environmental conditions are often transient, and thus being market oriented is cost-effective in spite of any possible short-term moderating effects of the environment.
Strategy is about seeking new edges in a market while slowing the erosion of present advantages. Effective strategy moves are grounded in valid and insightful monitoring of the current competitive position coupled with evidence that reveals the skills and resources affording the most leverage on future cost and differentiation advantages. Too often the available measures and methods do not satisfy these requirements. Only a limited set of measures may be used, depending on whether the business starts with the market and uses a customer-focused approach or alternatively adopts a competitor-centered perspective. To overcome possible myopia, the evidence of advantage should illuminate the sources of advantage as well as the manifestations of superior customer value and cost superiority, and should be based on a balance of customer and competitor perspectives.
The authors develop a conceptual framework of the marketing–finance interface and discuss its implications for the theory and practice of marketing. The framework proposes that marketing is concerned with the task of developing and managing market-based assets, or assets that arise from the commingling of the firm with entities in its external environment. Examples of market-based assets include customer relationships, channel relationships, and partner relationships. Market-based assets, in turn, increase shareholder value by accelerating and enhancing cash flows, lowering the volatility and vulnerability of cash flows, and increasing the residual value of cash flows.
The “difference” and “system” generalized method of moments (GMM) estimators for dynamic panel models are growing steadily in popularity. The estimators are designed for panels with short time dimensions (T), and by default they generate instruments sets whose number grows quadratically in T. The dangers associated with having many instruments relative to observations are documented in the applied literature. The instruments can overfit endogenous variables, failing to expunge their endogenous components and biasing coefficient estimates. Meanwhile they can vitiate the Hansen J test for joint validity of those instruments, as well as the difference-in-Sargan/Hansen test for subsets of instruments. The weakness of these specification tests is a particular concern for system GMM, whose distinctive instruments are only valid under a non-trivial assumption. Judging by current practice, many researchers do not fully appreciate that popular implementations of these estimators can by default generate results that simultaneously are invalid yet appear valid. The potential for type I errors—false positives—is therefore substantial, especially after amplification by publication bias. This paper explains the risks and illustrates them with reference to two early applications of the estimators to economic growth, Forbes (2000) on income inequality and Levine, Loayza, and Beck (LLB, 2000) on financial sector development. Endogenous causation proves hard to rule out in both papers. Going forward, for results from these GMM estimators to be credible, researchers must report the instrument count and aggressively test estimates and specification test results for robustness to reductions in that count.
This article proposes a model of the dynamics of the CEO's tenure in office. The central argument is that there are discernible phases, or seasons, within an executive's tenure in a position, and that these seasons give rise to distinct patterns of executive attention, behavior, and, ultimately, organizational performance. The five delineated seasons are (a) response to mandate, (b) experimentation, (c) selection of an enduring theme, (d) convergence, and (e) dysfunction. The theoretical and practical implications of the model are discussed.
This book integrates and assesses the vast and rapidly growing literature on strategic leadership, which is the study of top executives and their effects on organizations. The basic premise is that, in order to understand why organizations do the things they do, or perform the way they do, we need to comprehend deeply the people at the top-their experiences, abilities, values, social connections, aspirations, and other human features. The actions-or inactions-of a relatively small number of key people at the apex of an organization can dramatically affect organizational outcomes. The scope of strategic leadership includes individual executives, especially chief executive officers (CEOs), groups of executives (top management teams, or TMTs), and governing bodies (particularly boards of directors). Accordingly, the book addresses an array of topics regarding CEOs (e.g., values, personality, motives, demography, succession, and compensation); TMTs (including composition, processes, and dynamics); and boards of directors (why boards look and behave the way they do, and the consequences of board profiles and behaviors). The book synthesizes what is known about strategic leadership and indicates new research directions.
Understanding sources of sustained competitive advantage has become a major area of research in strategic management. Building on the assumptions that strategic resources are heterogeneously distributed across firms and that these differences are stable over time, this article examines the link between firm resources and sustained competitive advantage. Four empirical indicators of the potential of firm resources to generate sustained competitive advantage-value, rareness, imitability, and substitutability are discussed. The model is applied by analyzing the potential of several firm resources for generating sustained competitive advantages. The article concludes by examining implications of this firm resource model of sustained competitive advantage for other business disciplines.
Adopting an information-processing perspective and drawing on work in social psychology, this study examined the effects of top management team size and chief executive officer (CEO) dominance on firm performance in different environments. Data from 47 organizations revealed that firms with large teams performed better and firms with dominant CEOs performed worse in a turbulent environment than in a stable one. In addition, the association between team size and CEO dominance, and firm performance, is significant in an environment that allows top managers high discretion in making strategic choices but is not significant in a low-discretion environment.
This chapter discusses the problem of selecting optimal security portfolios by risk-averse investors who have the alternative of investing in risk-free securities with a positive return or borrowing at the same rate of interest and who can sell short if they wish. It presents alternative and more transparent proofs under these more general market conditions for Tobin's important separation theorem that “ … the proportionate composition of the non-cash assets is independent of their aggregate share of the investment balance … and for risk avertere in purely competitive markets when utility functions are quadratic or rates of return are multivariate normal. The chapter focuses on the set of risk assets held in risk averters' portfolios. It discusses various significant equilibrium properties within the risk asset portfolio. The chapter considers a few implications of the results for the normative aspects of the capital budgeting decisions of a company whose stock is traded in the market. It explores the complications introduced by institutional limits on amounts that either individuals or corporations may borrow at given rates, by rising costs of borrowed funds, and certain other real world complications.
This research responds to the attendant need for empirical evidence pertaining to how marketing affects firm performance. Using the Fama-French method, common in finance, and a leading marketplace measure of a brand’s financial equity value, the authors provide empirical evidence for the branding-shareholder value creation link. The results extend previous research by showing that strong brands not only deliver greater returns to stockholders than does a relevant benchmark but do so with less risk This finding holds even when market share and firm size are considered.
Marketing is a field that is rich in data. Our data is of high quality, often at a highly disaggregate level, and there is considerable variation in the key variables for which estimates of effects on outcomes such as sales and profits are desired. The recognition that, in some general sense, marketing variables are set by firms on the basis of information not always observable by the researcher has led to concerns regarding endogeneity and widespread pressure to implement instrumental variables methods in marketing problems. The instruments used in our empirical literature are rarely valid and the IV methods used can have poor sampling properties, including substantial finite sample bias and large sampling errors. Given the problems with IV methods, a convincing argument must be made that there is a first order endogeneity problem and that we have strong and valid instruments before these methods should be used. If strong and valid instruments are not available, then researchers need to look toward supplementing the information available to them. For example, if there are concerns about unobservable advertising or promotional variables, then the researcher is much better off measuring these variables rather than using instruments (such as lagged marketing variables) that are clearly invalid. Ultimately, only randomized variation in marketing variables (with proper implementation and large samples) can be argued to be a valid instrument without further assumptions.
While "unobservable" factors such as corporate culture, access to scarce resources, management skill, and luck can be postulated to be principal determinants of business success, their effects are all but ignored in studies of business performance. This study, making use of the PIMS data base, reports empirical evidence indicating that failure to control for unobservable factors influencing profitability both biases and exaggerates the effect of strategic factors. Indeed, the influence of unobservable factors is so pervasive as to invalidate many of the conclusions drawn from studies failing to control for their effects.
Microloan markets allow individual borrowers to raise funding from multiple individual lenders. We use a unique panel data set that tracks the funding dynamics of borrower listings on Prosper.com, the largest microloan market in the United States. We find evidence of rational herding among lenders. Well-funded borrower listings tend to attract more funding after we control for unobserved listing heterogeneity and payoff externalities. Moreover, instead of passively mimicking their peers (irrational herding), lenders engage in active observational learning (rational herding); they infer the creditworthiness of borrowers by observing peer lending decisions and use publicly observable borrower characteristics to moderate their inferences. Counterintuitively, obvious defects (e.g., poor credit grades) amplify a listing's herding momentum, as lenders infer superior creditworthiness to justify the herd. Similarly, favorable borrower characteristics (e.g., friend endorsements) weaken the herding effect, as lenders attribute herding to these observable merits. Follow-up analysis shows that rational herding beats irrational herding in predicting loan performance.
This paper was accepted by Pradeep Chintagunta, marketing.
Some chief marketing officers (CMOs) are more powerful than others. The authors investigate the drivers and outcomes of this phenomenon using a hierarchical measure of power for the CMO in the top management team (TMT), or corporate executive suite (C-suite). Theory suggests that CMO power in the TMT should increase with (1) the CMO's control over resources required by other executives in the C-suite, (2) the criticality and (3) effective provision of these resources, and (4) the nonsubstitutability and (5) centrality of the CMO. The authors use these rationales to identify factors that affect CMO power in public U.S. firms with the CMO position for at least two of the five observed years. The findings show that CMO power increases when the CMO has the additional responsibility of sales, as TMT marketing experience decreases, and as firms with low levels of TMT marketing experience pursue innovation. Furthermore, CMO power in highly divisionalized TMTs and the CMO's additional responsibility of sales improve sales growth, but CMO power in firms that are unrelated diversifiers reduces profitability. The authors discuss the theoretical and practical implications of these results for marketing's influence in the C-suite and the firm, the integration of marketing and sales, and market orientation.
Past research has shown a correlation between measures of brand equity and stock price. However, these results are not sufficient to conclude that branding creates shareholder value. Using time-honored models from the discipline of finance, this paper specifies, and subsequently tests, the necessary and sufficient conditions to determine whether brand strength leads to the creation of shareholder value. The results presented extend previous research by showing that strong brands not only deliver greater returns to stockholders versus a relevant market benchmark, they do so with less risk. A reframing of brand research within the framework of risk management is recommended, toward a goal of greater organizational interdependence and accountability for the marketing function as a whole.
Not all firms choose to have a chief marketing officer (CMO) in their top management teams (TMTs). This research investigates factors associated with this choice and whether CMO presence/absence in the face of these factors affects firm performance. Findings based on a multi-industry sample of 167 firms over a five-year period (2000-2004) show that innovation, differentiation, branding strategy, diversification, TMT functional experience in marketing, and the chief executive officer being an outsider are associated with the likelihood of CMO presence in the TMT. Furthermore, the authors find that CMO presence in the TMT has neither a positive nor a negative impact on firm performance. The authors discuss the implications of these findings for theory and practice.
The emergence of the Internet has pushed many established companies to explore this radically new distribution channel. Like all market discontinuities, the Internet creates opportunities as well as threats-it can be performance-enhancing as readily as it can be performance-destroying. Making use of event-study methodology, the authors assess the net impact of adding an Internet channel on a firm's stock market return, a measure of the change in expected future cash flows. The authors find that, on average, Internet channel investments are positive net-present-value investments. The authors then identify firm, introduction strategy, and marketplace characteristics that influence the direction and magnitude of the stock market reaction. The results indicate that powerful firms with a few direct channels are expected to achieve greater gains in financial performance than are less powerful firms with a broader direct channel offering. In terms of order of entry, early followers have a competitive advantage over both innovators and later followers, even when time of entry is controlled for. The authors also find that Internet channel additions that are supported by more publicity are perceived as having a higher performance potential.
This paper seeks to engage the organization theory community in contemporary debates over the role of the corporation in American society by using the case of the Saturn corporation to develop and illustrate a stakeholder theory of the firm. One normative and three positive questions are posed for a stakeholder theory: The normative question is: Why should stakeholder models be given serious consideration at this moment in history? The positive questions are: (1) Under what conditions is a stakeholder firm likely to emerge in the United States, (2) what are the critical determinants of performance in a stakeholder firm, and (3) what will determine the sustainability and diffusion of this organizational form in the American environment? The history, design features, and dynamics of the labormanagement partnership at Saturn are used to illustrate and interpret a specific case of employees as stakeholders. Saturn's original mission, governance structure, and internal processes fit the characteristics of a stakeholder firm. Employees establish themselves as influential, definitive stakeholders by using their knowledge to improve organizational performance. The local union likewise contributes to firm performance by organizing workers into a dense social network that contributes to problem solving, conflict resolution, and quality improvement. However, the legal and political environment in which the firm operates produces considerable uncertainty over the sustainability and diffusion of Saturn's features in particular, and the stakeholder organizational form in general. Additional hypotheses and research questions are proposed to continue theory building around the more general model of the stakeholder firm. Researchers are encouraged to take up the analysis of stakeholder models and thereby contribute to the contemporary and future debates over the role of the corporation in American society.
Understanding the impact of marketing on firm performance has received considerable attention in recent years. To further explore this issue, the authors explore top management team composition and strategic market aggressiveness in a conceptual model that integrates research in marketing and strategic management. The model is tested using 20 quarters of objective data on 173 firms across 47 industries. Path analysis indicates that inclusion of marketing expertise on the top management team and aggressive deployment of strategic resources for addressing markets contribute uniquely to sales growth which, in turn, contributes substantially to firm profitability and shareholder value.
Strategy is about seeking new edges in a market while slowing the erosion of present advantages. Effective strategy moves are grounded in valid and insightful monitoring of the current competitive position coupled with evidence that reveals the skills and resources affording the most leverage on future cost and differentiation advantages. Too often the available measures and methods do not satisfy these requirements. Only a limited set of measures may be used, depending on whether the business starts with the market and uses a customer-focused approach or alternatively adopts a competitor-centered perspective. To overcome possible myopia, the evidence of advantage should illuminate the sources of advantage as well as the manifestations of superior customer value and cost superiority, and should be based on a balance of customer and competitor perspectives.
Guided by notions from the literature on organizational learning, this paper investigates how product line experimentation and organizational performance change across the careers of top managers. Its subjects are the studio heads who ran all the major Hollywood film studios from 1936 to 1965. The study found first, that product line experimentation declines over the course of executive tenures; second, that there is an inverse U-shaped relationship between top executive tenure and an organization's financial performance; and third, that product line experimentation is more likely to benefit financial performance late in top executives' tenures. These findings are consistent with a three-stage ‘executive life cycle’. During the early years of their tenures, top managers experiment intensively with their product lines to learn about their business; later on their accumulated knowledge allows them to reduce experimentation and increase performance; finally, in their last years, executives reduce experimentation still further, and performance declines. Copyright © 2001 John Wiley & Sons, Ltd.
In this paper I derive a risk-adjusted measure of portfolio performance (now known as Jensen's Alpha) that estimates how much a manager's forecasting ability contributes to the fund's returns. The measure is based on the theory of the pricing of capital assets by Sharpe (1964), Lintner (1965a) and Treynor (Undated). I apply the measure to estimate the predictive ability of 115 mutual fund managers in the period 1945-1964 - that is their ability to earn returns which are higher than those we would expect given the level of risk of each of the portfolios. The foundations of the model and the properties of the performance measure suggested here are discussed in Section II. The evidence on mutual fund performance indicates not only that these 115 mutual funds were on average not able to predict security prices well enough to outperform a buy-the-market-and-hold policy, but also that there is very little evidence that any individual fund was able to do significantly better than that which we expected from mere random chance. It is also important to note that these conclusions hold even when we measure the fund returns gross of management expenses (that is assume their bookkeeping, research, and other expenses except brokerage commissions were obtained free). Thus on average the funds apparently were not quite successful enough in their trading activities to recoup even their brokerage expenses.
Managers must regularly make decisions on how to access and deploy their limited resources in order to build organizational capabilities for a sustainable competitive advantage. However, failure to recognize that organizational capabilities involve complex and intricately woven underlying processes may lead to an incomplete understanding of how capabilities affect competitive advantage. As a means of understanding this underlying complexity, we discuss how managerial decisions on resource acquisition and deployment influence capability embeddedness and argue that capability embeddedness has an incremental effect on firm performance beyond the effects from organizational resources and capabilities. To investigate these issues, we present a hierarchical composed error structure framework that relies on cross-sectional data (and allows for generalizations to panel data). We demonstrate the framework in the context of retailing, where we show that the embeddedness of organizational capabilities influences retailer performance above and beyond the tangible and intangible resources and capabilities that a retailer possesses. Our results illustrate that understanding how resources and capabilities influence performance at different hierarchical levels within a firm can aid managers to make better decisions on how they can embed certain capabilities within the structural and social relationships within the firm. Moreover, understanding whether the underlying objectives of the capabilities that are being built and cultivated have convergent or divergent goals is critical, as it can influence the extent to which the embedded capabilities enhance firm performance.
This article develops a framework for efficient IV estimators of random effects models with information in levels which can accommodate predetermined variables. Our formulation clarifies the relationship between the existing estimators and the role of transformations in panel data models. We characterize the valid transformations for relevant models and show that optimal estimators are invariant to the transformation used to remove individual effects. We present an alternative transformation for models with predetermined instruments which preserves the orthogonality among the errors. Finally, we consider models with predetermined variables that have constant correlation with the effects and illustrate their importance with simulations.
Estimation of the dynamic error components model is considered using two alternative linear estimators that are designed to improve the properties of the standard first-differenced GMM estimator. Both estimators require restrictions on the initial conditions process. Asymptotic efficiency comparisons and Monte Carlo simulations for the simple AR(1) model demonstrate the dramatic improvement in performance of the proposed estimators compared to the usual first-differenced GMM estimator, and compared to non-linear GMM. The importance of these results is illustrated in an application to the estimation of a labour demand model using company panel data.
This paper identifies five common risk factors in the returns on stocks and bonds. There are three stock-market factors: an overall market factor and factors related to firm size and book-to-market equity. There are two bond-market factors, related to maturity and default risks. Stock returns have shared variation due to the stock-market factors, and they are linked to bond returns through shared variation in the bond-market factors. Except for low-grade corporates, the bond-market factors capture the common variation in bond returns. Most important, the five factors seem to explain average returns on stocks and bonds.