Marketing as an Investment in Shareholder Value

Abstract

We present resource-based and capability-based arguments of marketing investment intensity to offer a strategic view of marketing as an investment in shareholder value. We find that marketing investment intensity has a U-shaped quadratic effect on shareholder value creation (Tobin's q) that calls for marketing investment to be protected and increased, not surrendered. We show how marketing investments interact with investments in R&D, human capital and operations to reveal how strategic co-investments can alter the shareholder value of marketing. Finally, we show how competitive intensity and failings in the firm's investment productivity (its ability to convert investment expenditure into sales) point to malaise in the firm's own strategic architecture as a fault for perceived poor returns from marketing investments. Our findings suggest that marketing investment should not be scapegoated when its contributions to shareholder value are not as expected. When invested in strategically and in combination with other investments, marketing can unlock exciting improvements in shareholder value.

Full text

British Journal of Management, Vol. 00, 1–23 (2018)
DOI: 10.1111/1467-8551.12284
Marketing as an Investment in Shareholder
Value
Mathew Hughes , Paul Hughes ,1Ji (Karena) Yan2
and Carlos M. P. Sousa2
Loughborough University, School of Business and Economics, Loughborough, Leicestershire LE11 3TU, UK,
1De Montfort University, Leicester Castle Business School, Leicester LE1 5WH, UK, and 2Durham University
Business School Durham University, Mill Hill Lane, Durham DH1 3LB, UK
Corresponding author email: m.hughes2@lboro.ac.uk
We present resource-based and capability-based arguments of marketing investment in-
tensity to oer a strategic view of marketing as an investment in shareholder value. We
find that marketing investment intensity has a U-shaped quadratic eect on shareholder
value creation (Tobin’s q) that calls for marketing investment to be protected and in-
creased, not surrendered. We show how marketing investments interact with investments
in R&D, human capital and operations to reveal how strategic co-investments can alter
the shareholder value of marketing. Finally, we show how competitive intensity and fail-
ings in the firm’s investment productivity (its ability to convert investment expenditure
into sales) point to malaise in the firm’s own strategic architecture as a fault for perceived
poor returns from marketing investments. Our findings suggest that marketing investment
should not be scapegoated when its contributions to shareholder value are not as expected.
When invested in strategically and in combination with other investments, marketing can
unlock exciting improvements in shareholder value.
Introduction
Senior managers and investors are concerned
about the impact of marketing investment on
shareholder value (Edeling and Fischer, 2016;
Hanssens and Pauwels, 2016). Verhoef and
Leeflang (2009) lamented that marketing is not
seen as an investment among senior managers.
This has been matched by marketing departments’
loss of influence in the last decade, despite encour-
aging evidence that marketing departments make
the greatest contributions to firm performance
(Homburg et al., 2015). Other studies also find
support for a financial benefit to the firm from
investing in marketing (e.g. Feng, Morgan and
Rego, 2017; Homburg et al., 2015; Luo, 2008;
Mishra and Modi, 2016). However, evidence of
myopic investment decisions, where marketing
budgets are cut to inflate current-term earnings
(Mizik and Jacobson, 2007), suggest that senior
managers have little confidence in what market-
ing investments have to oer shareholders. We
argue that marketing scholars and marketing
managers have failed to demonstrate the longer-
term shareholder value of investing in marketing
and communicating that in a vocabulary which
appreciates the accountability pressures on se-
nior management. Evidence for this is building
(Hanssens and Pauwels, 2016; Homburg et al.,
2015; Verhoef and Leeflang, 2009), and calls have
followed for a much deeper understanding of the
system of eects marketing investment has and its
relationship with shareholder value (Edeling and
Fischer, 2016; Germann, Ebbes and Grewal, 2015;
Kumar, Keller and Lemon, 2016). We address
these urgent calls.
Senior managers are driven by an accountability
agenda (Rust et al., 2004), and are sensitive to
investing only in those activities that demonstrably
generate value for shareholders (Homburg et al.,
C2018 British Academy of Management. Published by John Wiley & Sons Ltd, 9600 Garsington Road, Oxford OX4
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2M. Hughes et al.
2015; Kumar and Shah, 2009). Senior manage-
ment scepticism about marketing investment
is directly related to this agenda. We see three
dimensions to this problem. First, past research
has concentrated largely on financial performance
instead of shareholder value creation. Shareholder
value creation is focused on the long-term finan-
cial wellbeing, competitiveness and sustainability
of the firm, distinct from its current or short-term
financial performance. While evidence of revenue
and profit growth oer marketing a ‘seat at
the top table’ (Feng, Morgan and Rego, 2017,
p. 77), evidence of its contribution to shareholder
value is limited. This is important, because the
current debate is treating only part of the problem:
concerns over marketing as an investment stem
from a lack of evidence on the dimensions senior
managers and investors care for beyond revenue.1
Second, studies compare marketing investments
against other competing investments senior
managers make (e.g. R&D and operations in-
vestments) (Krasnikov and Jayachandran, 2008).
However, the moderating eects of these other
investments on the contributions of marketing
investment are missed. This is important, because
it risks an incomplete and potentially inaccurate
understanding of the interrelatedness of marketing
investment with other investments taking hold.
Investments in combination can create unique
capabilities that further establish the importance
of marketing investment in ways that have re-
ceived little treatment to date. Third, absent from
current debate are external and strategic-level
1An illustration can be found in the automobile indus-
try. In 2017, Tesla had a larger market capitalization than
Ford and General Motors, valued at US$55bn despite
seven straight years of losses since its IPO. In contrast,
in 2017, Ford fired CEO Mark Fields after three years
and under pressure from Wall Street investors, despite
achieving record revenue and profits, having its most prof-
itable year in 2015 with US$11bn profit. However, it had
seen its share price slide by 40%. This is an illustration
of how a focus on current financial performance, while
not wholly independent (because it gives the financial re-
sources needed to invest in the future), is not a measure of
shareholder value and is not solely what investors priori-
tize. Tesla has a higher marketing investment intensity ac-
cording to 2016 data as well. Moreover, Uber at one point
had a market capitalization of nearly US$70bn in 2017,
despite never having made a profit. Ford then considered
entering the ride-hailing market. The primary argument
for Fields’ dismissal was a failure to orient the business to-
wards the future and invest aggressively to please investors
to that end.
moderators of the eects of marketing investment
on shareholder value (Edeling and Fischer, 2016).
The contribution of marketing to shareholder
value will depend on external and internal bound-
ary conditions in the firm’s strategic architecture,
beyond the control of marketing managers. For
instance, the investment productivity of the firm
– a strategic-level factor pointing to its ability
to convert any one dollar of current spending
into revenues that fuel future investments – needs
consideration, while the competition intensity
faced by the firm is another important overlooked
contingency.
This discussion raises three important research
questions: (1) To what extent does marketing in-
vestment contribute to shareholder value? (2) Do
R&D, human capital and operations investments
moderate the relationship between marketing in-
vestment and shareholder value creation? (3) Does
the contribution of marketing investment to share-
holder value depend on the firm’s investment pro-
ductivity and the intensity of competition? Draw-
ing on a model of capital investment (Maritan,
2001), the resource-based view (RBV) of orga-
nizational capabilities (Helfat and Peteraf, 2003;
Wernerfelt, 1984) and resource combinations
(Sirmon et al., 2011), we argue that the intensity
of financial capital investment into specific activ-
ities is an act of investing in organizational capa-
bilities (Baldwin and Clark, 1992; Maritan, 2001).
We theorize that the contribution of marketing in-
vestment intensity to shareholder value is ampli-
fied by its interactions with other simultaneous
investments made by senior managers, the produc-
tivity of the firm at converting its investments into
revenue and competitive intensity.
This study oers two contributions. First, it
draws on theories of capital investment, the RBV
and resource combination to develop predictions
about how marketing investment and concurrent
investments interact to generate longer-term
shareholder value. This is important, because
treating combinations of investments under the
concept of investing in capability building demon-
strates how marketing investments can generate
shareholder value in ways that cannot necessarily
be foreseen by senior management due to causal
ambiguity. This contribution extends current
works that have yet to consider these interactions
or have only examined their eects on short-term
financial performance and not shareholder value
(e.g. Feng, Morgan and Rego, 2017; Homburg
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Marketing as an Investment in Shareholder Value 3
et al., 2015; Katsikeas et al., 2016; Luo and de
Jong, 2012; Verhoef and Leeflang, 2009).
Second, this study identifies the investment
productivity of the firm and competitive inten-
sity as new boundary conditions that aect the
marketing investment–shareholder value relation-
ship. The value of marketing investment depends
on marketplace conditions (Feng, Morgan and
Rego, 2017; Morgan, 2012), but any treatment of
internal organizational conditions (Edeling and
Fischer, 2016; Homburg et al., 2015) and com-
petitive intensity has been absent. Our findings
show that marketing investment can be inade-
quate in creating shareholder value if we do not
simultaneously account for the productivity of the
firm at maximizing sales out of its expenditures.
This investment productivity is a proxy for the
firm’s talent at using its capabilities to generate
the revenue needed to fund future investments. By
demonstrating the importance of the firm’s own
investment productivity in creating shareholder
value from its investments, we show how any
dismay with marketing may stem from greater
strategic problems within the firm itself.
Theoretical foundation
Investments are made to build capabilities
(Dierickx and Cool, 1989; Maritan, 2001).
Dedicating funds to specific activities commits
resources such as people, expertise and know-
how in anticipation of future expected returns
exceeding the opportunity cost of the original
investment (Baldwin and Clark, 1992; Maritan,
2001). We examine investment intensity by dividing
investment with sales turnover, because a firm
cannot spend more than it budgets to receive
in sales revenue on any one activity. As a firm
invests more intensely in an activity, it can form a
capability that over time becomes more complex
and dicult to erode (Helfat and Peteraf, 2003).
These investments can then enable competitive
advantages that contribute to shareholder value.
We examine four important investments a firm
can make, and which compete with each other
for finance: marketing investment, R&D invest-
ment, operations investment and human capital
productivity. Marketing investment intensity con-
cerns expenditure to use available resources to
perform direct and indirect marketing tasks of
selling, advertising, marketing and delivery of
products (Dutta, Narasimhan and Rajiv, 1999;
Mizik and Jacobson, 2007). R&D investment inten-
sity concerns expenditure to use available resources
to create technological knowledge and advance-
ments for product and process innovations (Dutta,
Narasimhan and Rajiv, 1999). Operations invest-
ment intensity concerns expenditure to perform
organizational activities eciently and flexibly
with minimum resource wastage (Krasnikov and
Jayachandran, 2008). Each can explain interfirm
dierences in performance (Dutta, Narasimhan
and Rajiv, 1999). We add human capital produc-
tivity (Becker, 1975) because improvements in em-
ployee productivity are driven by improvements in
the intellectual assets of the firm (the skills and ac-
cumulated knowledge of its people), brought on by
investments in human capital (Pfeer, 1994).
The shareholder value of marketing investment
intensity may interact with the intensity of in-
vestments made in other organizational activities
(Srivastava, Shervani and Fahey, 1998). Financial
capital investment is made in an eort to maintain
or add to existing capabilities (Baldwin and Clark,
1992), increase their strength relative to competi-
tors (Maritan, 2001) or reverse their deterioration
(Dierickx and Cool, 1989). Firms investing in com-
binations of activities can add further competitive
advantage (Sirmon et al., 2011). We see this as
a product of a firm making simultaneous invest-
ments capable of forming new or unexpected capa-
bilities (Baldwin and Clark, 1992). As investments
payos are uncertain, it should not be assumed
that combinations of investments are inherently
superior to individual ones. While more complex
capabilities might emerge, their emergence may be
causally ambiguous, cause capabilities to compete,
or fail. For example, combining marketing and
R&D investments might shape a product devel-
opment capability (Dutta, Narasimhan and Rajiv,
1999); it might also waste resources as the firm
competes between the tensions of servicing its ex-
isting markets and finding new ones.
Firms dier in their ability to maximize revenue
from their investments (e.g. Kumar and Petersen,
2004; Luo and Donthu, 2006). While earning rev-
enue (short-term financial performance) is distinct
to shareholder value creation, they are not wholly
separate. When more revenue accrues to one firm
compared to another from similar expenditure, we
theorize that such a firm has investment produc-
tivity. Investment productivity captures how pro-
ductive a firm is at converting its expenditure into
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4M. Hughes et al.
Figure 1. Theoretical model and hypotheses
sales revenue. A firm high in investment productiv-
ity exhibits a better ability to get the most dollars
out of the investments it makes, can generate ex-
tra financial capital to invest in further developing
its capabilities and can enter projects in pursuit of
long-term shareholder value. The failure of mar-
keting investment intensity to contribute to share-
holder value might, therefore, be a function of a
very dierent strategic problem: the inability of the
firm to convert investment into the revenue that fu-
els future investments. The failure of marketing in-
vestment would then be a scapegoat for this prob-
lem. We see investment productivity as a missing
link in the relationship between marketing invest-
ment intensity and shareholder value creation. Fi-
nally, studies suggest the importance of external
contingencies on the value of marketing (Feng,
Morgan and Rego, 2017; Morgan, 2012). We in-
clude competitive intensity as this boundary con-
dition. Figure 1 illustrates our theoretical model.
Hypotheses
We predict that marketing investment intensity has
a nonlinear relationship with shareholder value. At
low levels of marketing investment intensity, we
anticipate a negative eect on shareholder value
but as marketing investment increases, we expect
a positive eect to emerge. We also expect that the
eects of any investment (individually or in com-
bination) on shareholder value are lagged. Thus,
we treat an investment as taking place at time t−1
and shareholder value at time t. Table 1 provides an
overview of studies that link marketing to financial
outcomes.
Marketing activities must satisfy customer
requirements without ignoring the costs incurred
in achieving the firm’s financial objectives. Cash
flows distributed to investors determine share-
holder value (Rappaport, 1986). However, most
initial marketing investments will not pay out
and do not generate first-year profits or positive
first-year cash flows (Blattberg and Deighton,
1991). Instead, ‘lean’ marketing and advertis-
ing expenditures can lead to a backlash that
creates unproductive outcomes which hinder
customer equity eorts (Luo and Donthu, 2006).
As such, low levels of marketing investment
intensity can result in objectives such as planned
levels of customer awareness, corporate expo-
sure and new product innovations being missed
(Dutta, Narasimhan and Rajiv, 1999; Szymanski,
Bharadwaj and Varadarajan, 1993), diminishing
future returns. Thus, at low-to-medium levels
of marketing investment, the associated costs
will outweigh the associated benefits. Notions of
‘critical mass’ explain this relationship, because
some minimum amount of investment is necessary
before any impact or output can be realized
(Terpstra, 1983).
As marketing investments continue to increase,
we expect the associated benefits to outweigh the
associated costs and positively aect shareholder
value. Beyond a mid-range point of marketing
investment intensity, the paybacks will be more
beneficial because gains in performance through
continued investment in understanding customers’
needs will be incrementally positive. Significant
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Marketing as an Investment in Shareholder Value 5
Table 1. Summary table of empirical studies of marketing actions on financial outcomes
Author(s) Antecedent Empirical findings
McKee, Varadarajan and
Pride (1989)
Marketing eort Marketing eort (used synonymously elsewhere in the paper
with marketing tactics) dierentially aect adaptive
capability, which is then related to financial performance.
Zahra and Covin (1993) Marketing intensity Marketing intensity positively aects an aggressive
technological posture and new product development, and
these technology policy choices dierentially aect firm
financial performance.
Barth et al. (1998) Brand value A positive association between brand value and capital
market valuation.
Kerin and Sethuraman (1998) Brand value A positive association between brand value and shareholder
value.
Aaker and Jacobson (2001) Brand attitude A positive association between brand attitude and firm
value.
Kotabe, Srinivasan and
Aulakh (2002)
Multinationality Marketing capabilities moderate the impact of
multinationality on financial and operational
performance (short-term performance).
Anderson, Fornell and
Mazvancheryl (2004)
Customer satisfaction A positive association between customer satisfaction and
shareholder value.
Pauwels et al. (2004) Sales promotion Sales promotions diminish long-term firm value, even
though they have positive eects on revenues and, in the
short run, on profits.
Rao, Agarwal and Dahlho
(2004)
Branding strategies Corporate branding strategy is associated with higher values
of Tobin’s q; mixed branding strategy is associated with
lower levels of Tobin’s q.
Hooley et al. (2005) Marketing resources Resources impact financial performance indirectly through
creating customer satisfaction and loyalty and building
superior market performance.
Fornell et al. (2006) Customer satisfaction A positive association between customer satisfaction and
shareholder value.
Gupta and Zeithaml (2006) Customer metrics Customer lifetime value and customer equity provide a good
basis to assess the market value of a firm.
Luo and Donthu (2006) Marketing communication
productivity (MCP)
MCP has an inverted U-shaped influence on shareholder
value.
Madden, Fehle and Fournier
(2006)
Brand equity value A positive association between brand equity value and
shareholder value.
Mizik and Jacobson (2007) Marketing expenditures The long-term financial consequences to the firm of
artificially inflating earnings by cutting marketing
expenditures outweigh the short-term benefits.
O’Sullivan and Abela (2007) Ability to measure marketing
performance (or marketing eort
in the job)
Ability to measure marketing performance has a significant
impact on firm performance, profitability, stock returns
and marketing’s stature within the firm.
Sorescu, Shankar and
Kushwaha (2007)
New product preannouncement The more specific the content of a preannouncement, the
higher are the stock returns in the short run. Furthermore,
updating investors after the preannouncement leads to
higher stock returns in the long run.
Krasnikov and Jayachandran
(2008)
Marketing capability Marketing capability has a stronger positive impact on firm
performance than R&D and operations capabilities.
Luo (2008) Marketing expenditures The higher the firm’s pre-IPO marketing expenditures, the
lower is the IPO underpricing and the higher is the IPO
trading in financial markets.
Mizik and Jacobson (2008) Brand attributes Analysis shows that perceived brand relevance and energy
provide incremental information to accounting measures
in explaining stock returns.
Joshi and Hanssens (2009) Advertising Movies with above-average prelaunch advertising have lower
post-launch stock returns than films with below-average
advertising.
Kumar and Shah (2009) Customer lifetime value (CLV) A positive association between CLV and shareholder value.
Continued
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6M. Hughes et al.
Table 1. Continued
Author(s) Antecedent Empirical findings
Srinivasan et al. (2009) Marketing investments The stock-return impact of new product introductions is
higher when they are backed by substantial advertising
investments. Promotional incentives do not increase firm
value eects of new product introductions, as they may
signal an anticipated weakness in demand for the new
product. The stock-return impact of new product
introductions is higher for innovations with higher levels
of brand’s perceived quality.
Verhoef and Leeflang (2009) Marketing department’s influence There is no direct relationship between marketing influence
and business performance.
Vorhies, Morgan and Autry
(2009)
Marketing capabilities Architectural and specialized marketing capabilities, and
their integration, positively mediate the product market
strategy and cash flow performance (short-term financial
performance). (Controlled for marketing expenditure.)
Wang, Zhang and Ouyang
(2009)
Advertising Negative persistence eects of advertising to firm intangible
values.
Grewal, Chandrashekaran
and Citrin (2010)
Customer satisfaction heterogeneity Shareholder value is shaped by the interplay of customer
satisfaction level and heterogeneity, through their impact
on retention sales, acquisition sales and servicing costs.
Joshi and Hanssens (2010) Advertising Advertising spending has a positive, long-term impact on
own firms’ market capitalization.
Torres and Trib ´
o (2011) Customer satisfaction Customer satisfaction has a positive impact on shareholder
value up to a certain level, beyond which the eect is
negative.
Luo and de Jong (2012) Advertising Advertising spending increases firm value in terms of both
return and risk metrics and firm financial performance.
O’Sullivan and McCallig
(2012)
Customer satisfaction Customer satisfaction has a positive impact on firm value.
Kurt and Hulland (2013) Marketing expenditures Aggressive marketing spending has a more pronounced
impact on firm value during the two-year post-oering
period than any other period.
Qiu (2014) Product diversification Product diversification positively aects the firm’s market
value (Tobin’s q).
Sridhar, Narayanan and
Srinivasan (2014)
Advertising Advertising spending has a positive impact on firm value.
Feng, Morgan and Rego
(2015)
Marketing department power A powerful marketing department enhances firms’
longer-term future total shareholder returns beyond its
positive eect on firms’ short-term ROA.
Germann, Ebbes and Grewal
(2015)
Chief Marketing Ocer (CMO) CMO presence has a positive impact on Tobin’s q.
Homburg et al. (2015) Marketing department’s influence Marketing department’s influence has a positive impact on
customer relationship performance and on the firm’s
financial performance.
Malshe and Agarwal (2015) Customer satisfaction Customer satisfaction has a positive impact on Tobin’s q.
Vomberg, Homburg and
Bornemann (2015)
Brand equity Positive eect of brand equity on firm value.
Edeling and Fischer (2016) Marketing investments Marketing-mix decisions such as advertising spending
translate into financial results for firms that are
appreciated by the stock market.
Fornell, Morgeson III and
Hult (2016)
Customer satisfaction Stock returns on customer satisfaction are above the market.
Lariviere et al. (2016) Customer satisfaction The influence of customer satisfaction and loyalty intentions
on shareholder value varies by industry.
Mishra and Modi (2016) Marketing capability Marketing capability has a significant and positive eect on
stock returns.
Feng, Morgan and Rego
(2017)
Marketing capability To enable future revenue and profit growth, firms need to
invest in building stronger marketing capabilities.
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Marketing as an Investment in Shareholder Value 7
investments in marketing activities allow the firm
to build brand equity, increase market share and
sales (Boulding, Lee and Staelin, 1994) and en-
hance customer loyalty (Russell and Kamakura,
1994), positively impacting shareholder value.
Significant marketing investments can also act as
a signal of financial wellbeing and competitive vi-
ability, thereby increasing shareholder value (Joshi
and Hanssens, 2010). Thus, we hypothesize that
marketing investment intensity has a U-shape in-
fluence on shareholder value.2
H1: Marketing investment intensity has a
U-shape influence on shareholder value.
R&D expenditures can drive the market value
of the firm (Sridhar, Narayanan and Srinivasan,
2014). R&D investments are expected to reduce
the negative eects of low levels of marketing in-
vestment intensity and increase the positive eects
of high levels of marketing investment intensity
on shareholder value. For instance, low market-
ing investment has a detrimental eect on cus-
tomer loyalty (Huang, 2015). R&D investments
can mitigate this negative eect. Investments in
R&D are a primary source of product innovations,
and new products are often perceived by customers
to oer superior quality and benefits (Stock and
Zacharias, 2013), which generate customer loyalty
(e.g. Fornell et al., 1996; Frank et al., 2014). Con-
sequently, R&D investments support an innova-
tion capability to enjoy superior customer loyalty
(Givon, Mahajan and Muller, 1995), thereby re-
ducing the negative eect of low levels of market-
ing investment. Similarly, as low marketing invest-
ment negatively aects brand equity and thereby
shareholder value (Madden, Fehle and Fournier,
2006; Srinivasan et al., 2009), R&D investment
can reduce this negative impact through its own
positive influence on brand equity (Torres and
Trib ´
o, 2011). R&D investments can also heighten
the positive eect that high levels of marketing
investments have on shareholder value. For in-
stance, together they lead to the development of
2Luo and Donthu (2006) propose an inverted U-shape re-
lationship between ‘marketing communications produc-
tivity’ and shareholder value. This is an eciency measure
of marketing input to output. Nevertheless, their argu-
ments support the deleterious eects of ‘lean’ marketing
and advertising expenditures and the view that a sucient
investment in marketing is needed to create shareholder
value. We thank an anonymous reviewer for encouraging
us to explain this alternate position.
new products capable of better meeting customer
needs. This is consistent with evidence regard-
ing R&D-induced growth providing better returns
than growth in general (Chauvin and Hirschey,
1993), and a focus on innovation through R&D
as a way of stimulating longer-term sales growth
(Kelm, Narayanan and Pinches, 1995). Thus, we
have the following hypothesis.
H2: R&D investment intensity positively mod-
erates the curvilinear relationship between mar-
keting investment intensity and shareholder
value. Increasing levels of R&D investment in-
tensity reduces the negative eects of low levels
of marketing investment intensity and increases
the positive eects of high levels of marketing
investment intensity.
Moorman and Day (2016) see human capital as
a key force in achieving excellence from marketing
investment, and Riley, Michael and Mahoney
(2017) found that human capital investments are
more impactful when combined with advertising
investments. Assuring that people add value to
firm processes through their human capital oers
competitive advantage (Wright, McMahan and
McWilliams, 1994). Firms investing in human
capital can mitigate the negative eects of low
intensity investments in marketing and accentuate
the benefits of high marketing investment. The
hallmarks of human capital are bright and skilled
employees with expertise in their roles and func-
tions. They are a key source of new ideas (Snell
and Dean, 1992). Firms investing in human capital
increase their intellectual capital base and increase
their capacity to absorb and deploy knowledge
(Subramaniam and Youndt, 2005), becoming
more productive in their tasks (Dess and Shaw,
2001) and more capable of filtering information to
arrive at better decisions (Kang and Snell, 2009).
Firms then become more ecient in using the mar-
ket knowledge they acquire (Ling and Jaw, 2006).
We further expect such human capital productivity
to strengthen the positive portion of marketing
investment’s contribution to shareholder value.
As human capital productivity grows, employees
are in a better position to leverage the firm’s re-
sources to take advantage of market opportunities
(Ostein, Gnyawali and Cobb, 2005) with new
ideas and techniques. Thus we hypothesize
H3: Human capital productivity positively
moderates the curvilinear relationship between
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8M. Hughes et al.
marketing investment intensity and shareholder
value. Increasing levels of human capital pro-
ductivity reduces the negative eects of low lev-
els of marketing investment intensity and in-
creases the positive eects of high levels of
marketing investment intensity.
Marketing and operations are functional areas
that create and add value to customers. Intimately
connecting the two can increase firm performance
(Ho and Tang, 2004; Malhotra and Sharma, 2002).
A firm increases operations investment to perform
organizational activities more eciently and eec-
tively (Krasnikov and Jayachandran, 2008). In do-
ing so, it reduces cost and increases flexibility in the
delivery process to achieve competitive advantage
(Day, 1994), osetting the initial negative eect of
low-to-medium marketing investment intensity. As
dierent customer needs can often require dier-
ent operations capabilities in a plant, investment
in operations can help the firm to dierentiate its
products from their competitors, thereby positively
impacting the firm’s sales (Berry et al., 1991). This
can help mitigate the negative eects of low lev-
els of marketing investments. Thereafter, invest-
ment in operations enables infrastructure devel-
opment that supports high-quality product design
processes that create customer value (Tan et al.,
2004) and loyalty. Operations investments can then
enhance the positive eects of high marketing in-
vestments. Thus
H4: Operations investment intensity positively
moderates the curvilinear relationship between
marketing investment intensity and shareholder
value. Increasing levels of operations investment
intensity reduces the negative eects of low lev-
els of marketing investment intensity and in-
creases the positive eects of high levels of mar-
keting investment intensity.
We expect increasing levels of investment pro-
ductivity to reduce the negative eects of low mar-
keting investments and amplify the positive eects
of high levels of marketing investment intensity
on shareholder value. Investment productivity cap-
tures how well a firm is able to transform its expen-
diture into revenue. Greater investment productiv-
ity is indicative of the firm’s ability to get the best
use of, and the most value from, its capabilities. In
the case of low levels of marketing investment, it is
important for firms to be investment productive in
order to make the most of their limited resources.
A firm is considered productive if it is able to max-
imize its value given its resource constraints (Nath,
Nachiappan and Ramanathan, 2010). Investment
productivity supports a firm to better leverage its
resources to enhance shareholder value in the case
of low levels of marketing investments.
As significant investments in marketing activi-
ties should increase shareholder value, this pos-
itive impact is further enhanced by increased
investment productivity. With high levels of mar-
keting investments and increasing levels of invest-
ment productivity, firms gain a greater ability to
derive financial reward from any dollar investment,
and gain a greater future ability to invest in fur-
ther market growth. Such a combination will bene-
fit shareholder value because of the firm’s superior
position to garner longer-term performance and
its superior projected future health (Mittal et al.,
2005). Thus
H5: Investment productivity positively moder-
ates the curvilinear relationship between mar-
keting investment intensity and shareholder
value. Investment productivity reduces the neg-
ative eects of low levels of marketing invest-
ment intensity and increases the positive eects
of high levels of marketing investment intensity.
Competitive intensity is beneficial because it
forces the firm to be more ecient and eective
in using its resources, to react quickly to competi-
tors’ moves and to intensify its eorts to dier-
entiate itself from the competition (Powell, 1996;
Ramaswamy, 2001). This ‘competition leads to
competence’ approach (Barnett, Greve and Park,
1994; Levinthal and Myatt, 1994) suggests that the
more competitive the market, the better firms are
at using their resources and capabilities to over-
come these competitive challenges. Firms tend to
undertake greater learning in highly competitive
markets, challenging their current practices and
exploring innovative ways of satisfying customer
needs (O’Cass and Weerawardena, 2010). Compet-
ing in intense markets also requires the firm to
actively monitor and respond to customer and en-
vironmental changes. Consequently, firms operat-
ing in competitively intense markets are more likely
to innovate (Abebe and Angriawan, 2014) and be
more eective and ecient in using their existing
resources to meet changing customer needs (Sousa
and Lengler, 2011). As competition increases, firms
are forced to find novel means to dierentiate
themselves and develop new oerings that provide
C2018 British Academy of Management.

Marketing as an Investment in Shareholder Value 9
superior customer value (Heirati et al., 2016),
thereby generating customer loyalty that supports
shareholder value. Taken together, firms compet-
ing in highly intense markets should be in a better
position to simultaneously minimize the negative
and enhance the positive eects of marketing in-
vestments on shareholder value. Thus
H6: Competitive intensity positively moderates
the curvilinear relationship between marketing
investment intensity and shareholder value. In-
creasing levels of competitive intensity reduces
the negative eects of low levels of marketing
investment intensity and increases the positive
eects of high levels of marketing investment
intensity.
Data and measurement
Data
A detailed panel dataset was generated from
COMPUSTAT for 2004–2014, for US firms only.
The firm-year is our unit of analysis. We have not
filtered the sample by size or revenue to avoid sam-
ple selection bias, but we include relevant indus-
try and firm-level variables to control the size ef-
fect. We did not limit by industry, but our choice
of theoretical variables gears us towards those
firms making marketing, R&D, operations and hu-
man capital investments. To account for a time-
lag eect, all independent variables, moderators
and control variables were lagged to the depen-
dent variable by one year. This generated 8469 data
points after missing values, in which observation
numbers are 1085 (observations in 2004 are ex-
cluded in the final observation numbers due to tak-
ing the time-lag eect into account), 210, 1070,
1060, 1053, 1031, 990, 937, 908, 925 and 285 across
2004–2014, respectively.
Measurement
Measures are reported in Table 2, and their de-
scriptive properties in Table 3. The dependent
variable, shareholder value, is measured using
Tobin’s q. Tobin’s q is comparable across firms
and industries and is a numeric value based on
each firm-year unit. We calculate Tobin’s q follow-
ing prior studies (Luo and Donthu, 2006; Rao,
Agarwal and Dahlho, 2004).
We measure all investment intensity variables by
taking their comparative values for each firm-year
unit. Marketing investment intensity is calculated
as marketing expenditure divided by total an-
nual sales. Consistent with extant works (see
Table 2), selling, general and administrative ex-
penses (SG&A) is used as a proxy for mar-
keting expenditure, because it is made up of
direct and indirect costs associated with mar-
keting. SG&A is better than a single mar-
keting expenditure item (e.g. advertising), be-
cause it includes more items associated with
marketing investment (e.g. advertising spend,
promotional spend, sales force costs) (Dutta,
Narasimhan and Rajiv, 1999; Mizik and Jacob-
son, 2007). To prevent double-counting, R&D ex-
penses were subtracted as the SG&A value in
COMPUSTAT includes this (Mizik and Jacobson,
2007). R&D investment intensity is the ratio of
R&D expenditure to total annual sales (Anderson,
Fornell and Mazvancheryl, 2004). Operation in-
vestment intensity is measured as a ratio of net
property, plant and equipment (PPE) to gross
PPE. Human capital productivity is calculated as
the ratio of total annual turnover to number of
employees. Higher values imply that the firm has
made better investments in its employees, enabling
them to achieve higher levels of financial output
per employee (Datta, Guthrie and Wright, 2005).
Investment productivity measures how well a firm
functions, calculated as the ratio of total annual
sales to the sum of SG&A and cost of goods sold.
By having high investment productivity, the rela-
tive saved investment per dollar (by having supe-
rior ‘output’ from any dollar investment) can be
invested in other projects (Anderson, Fornell and
Rust, 1997; Mittal et al., 2005; Ofek and Sarvary,
2003). Competitive intensity measures the level of
competition in each industry by the number of
firms existing in a 4-digit SIC.
We include firm-level and industry-level control
variables. We control for firm size, as larger firms
may hold larger resource stocks that influence
shareholder value. The natural logarithm of the
number of employees3measures firm size. Return
on assets (ROA) indicates how eciently senior
managers use the firm’s assets to generate earn-
ings. Studies report that ROA impacts Tobin’s q
(Luo and Donthu, 2006). We measured ROA with
3We tested the raw number of employees as an alterna-
tive measure. Our findings were robust to the alternative
operationalization.
C2018 British Academy of Management.

10 M. Hughes et al.
Table 2. Data measurements
Variable Definition Data measurement Source of the measure
Tobin’s q Value of the firm – the ratio
between a physical asset’s
market value and its
replacement value
The result of ((Market value +
liquidating value of preferred
stock +short-term liabilities −
short-term assets +book value
of long-term debt) / Book value
of total assets) at time t and the
following variables at time t−1
Haleblian et al. (2012); Lee and
Grewal (2004); Luo and Donthu
(2006); Rao, Agarwal and
Dahlho (2004)
Marketing investment
intensity
The level of investment
firms make in marketing
The result of (SG&A −R&D /
Sales)
Denekamp (1995); Kotabe,
Srinivasan and Aulakh (2002);
Toyne (1976); Tsai and
Eisingerich (2010); see also
Mizik and Jacobson (2007)
R&D investment
intensity
The level of investment
firms make in technology
The results of (R&D investment /
Sales)
Baysinger and Hoskisson (1989);
Cohen and Klepper (1992);
Haleblian et al. (2012); Hundley,
Jacobson and Park (1996); Long
and Ravenscraft (1993); Tsai and
Eisingerich (2010); Zhang et al.
(2007)
Operation investment
intensity
The level of investment
firms make in operations
The result of (Net PPE / Gross
PPE)
This study. Ratio of book value of
investments in operational assets
to the actual spend on
operational assets
Human capital
productivity
Revenue per employee The result of (Productivity =Sales /
Employees)
Campbell et al. (2012); Datta,
Guthrie and Wright (2005);
Koch and McGrath (1996)
Investment
productivity
Revenue per cost of sales The result of (Sales / (SG&A +
cost of goods sold)
This study
Firm size Size of firms The logarithm of number of
employees
Luo and Donthu (2006); Wales
et al. (2013)
Competitive intensity The level of competition
concentration within an
industry
The number of firms in the same
4-digit SIC code for each
firm-year observation
Luo and Donthu (2006)
ROA Return on assets The ratio of net income before
extraordinary items to assets
COMPUSTAT
Acquisitions value The eect of either a
purchase and/or pooling
of interest acquisition in
the current year on a
firm’s sales
The costs relating to acquisition of
afirm
COMPUSTAT
S&P quality index S&P Dow Jones indices Standard & Poor’s grades ratings in
seven categories ranging from
A1+(the highest quality
obligation, coded as 7) to D (the
lowest quality obligation, coded
as 1)
COMPUSTAT
Financial crisis US financial crisis A dummy variable coded as 1 if
year is 2007, 2008 or 2009; 0
otherwise
Thakor (2015)
Time period 2004–2014 COMPUSTAT
Data source COMPUSTAT
the ratio of net income to assets and controlled
for its influence at time t−1 when computing To-
bin’s q at time t. Acquisitions value was measured
as the cost of acquisitions made. S&P quality
index was measured according to Standard &
Poor’s seven ratings categories. Financial crisis was
measured as a dummy variable (1 if year is 2007,
2008 or 2009; 0 otherwise). We include 4-digit SIC
and year dummies to control industry and year-
level variance.
C2018 British Academy of Management.

Marketing as an Investment in Shareholder Value 11
Table 3. Descriptive statistics
Variable MeanSDMinMax1 2 34567891011VIF
1 Tobin’s q 1.77 3.44 −0.72 163.35 1
2 Marketing investment intensity 0.38 0.58 0.00 16.52 0.17*11.81
3 R&D investment intensity 0.09 0.29 0 16.75 0.0*0.5*11.40
4 Operation investment intensity 0.44 0.19 0 1.00 −0.01 0.0*0.01 1 1.18
5 Human capital productivity 326.19 417.94 4.14 12303 0.01 −0.0*−0.0*0.0*1 1.10
6 Investment productivity 1.14 0.30 0.03 10.53 0.0*−0.0** −0.0*0.01 0.0*1 1.45
7 Competitive intensity 137.41 172.37 1 488 0.0*0.1*0.1*−0.0*−0.0*−0.01 1 1.36
8 Firm size 0.15 2.30 −6.91 7.65 −0.0*−0.2*−0.1*0.1*−0.0*−0.0*−0.2*1 1.71
9 ROA 0.02 0.03 −0.23 0.55 −0.01 −0.0*−0.0*−0.0*−0.01 −0.0*−0.1*0.1*1 1.27
10 Acquisition 86.84 701.37 0 43123 −0.01 −0.0*−0.0*0.0*−0.01 −0.01 −0.0*0.1*0.0*1 1.06
11 S&P quality index 2.63 1.91 0 8 −0.0*−0.1*−0.0*−0.1*−0.0*−0.0*−0.3*0.2*0.1*0.0*1 1.49
12 Financial crisis 0.33 0.47 0 1 0.01 0.01 0.01 0.0*−0.01 −0.01 −0.0*−0.01 0.0*0.0*0.0*1.06
*p <0.05.
Analytical models
Baseline model
We start with a baseline model (Model 1) in which
all impact of unobservable variables on the re-
lationships between the dependent variable and
the independent variables is completely ignored.
No interaction terms are included. We specify the
baseline model as
Tobinsqit =μ+λ1×MIit−1+λ2×RDIit−1
+λ3×OIit−1+λ4×HCIit−1
+λ5×IPit−1+λ6×COMPit−1
+λctrl ×Controlsit−1+εit (1)
where
E(εitεit)=σ2if i =i,t=t
0else
Controlling for firm-level and time-level unobserved
heterogeneity
Since we hypothesize a U-shaped relationship be-
tween marketing investment intensity and Tobin’s
q, and we are focused on the moderating eects
of RDI, OI, HCI, IP and COMP on this rela-
tionship, we add the squared term of marketing
investment intensity to compose Model 2. Then
we add the interaction terms between marketing
investment intensity and the other strategic vari-
ables, as well as the interaction terms between the
squared term of marketing investment intensity
and the other strategic variables, respectively, into
Model 2 to compose Model 3. All independent and
moderating variables are operationalized follow-
ing Aiken and West (1991), to avoid multicollinear-
ity. To compute the time-lagged eect, we set To-
bin’s q at time t and set all regressors at time t−1.
We test endogeneity and disturbances potentially
caused by multicollinearity and heteroscedastic-
ity. VIF values (Table 3) range from 1.06 to 1.81,
suggesting that multicollinearity is not a concern.
However, Breusch–Pagan tests confirm that het-
eroscedasticity is present in our data; therefore, we
correct the estimate by calculating robust standard
errors in the computation process.4We control for
unobserved heterogeneity in firm-level factors and
4We also computed the Driscoll–Kraay standard errors
and found that they are consistent with standard error
C2018 British Academy of Management.

12 M. Hughes et al.
time-level factors due to the unobserved het-
erogeneity, resulting in large variance for cross-
sectional time-series data. We specify two-way
fixed eects models (Model 2 and Model 3) with
Tobin’s q as dependent variable:5
Tobinsqit =(α+μi+γt)+β1×MIit−1+β2
×RDIit−1+β3×OIit−1+β4
×HCIit−1+β5×IPit−1+β6
×COMPit−1+β7×MISit−1
+βctrl ×Controlsit−1+εit (2)
Tobinsq
it =(α+μi+γt)+β1×MIit−1+β2
×RDIit−1+β3×OIit−1+β4
×HCIit−1+β5×IPit−1+β6
×COMPit−1+β7×MISit−1
+β8×MIit−1×Interactionsit−1
+β9×MISit−1×Interactionsit−1
+βctrl ×Controlsit−1+εit (3)
where
α=intercept
μi=firm-specific eect on intercept
γt=time-specific eect on intercept
MI =marketing investment intensity
RDI =R&D investment intensity
OI =operations investment intensity
HCI =human capital productivity
IP =investment productivity
COMP =competitive intensity
MIS =square term of marketing invest-
ment intensity
MI ×Int. =interaction terms among RDI, OI,
HCI, IP, COMP and linear term of
marketing investment intensity
estimates obtained from the covariance matrix estimators
in our results.
5We computed the cubic term of marketing investmentin-
tensity, but it is insignificant. We also computed the re-
gression that corrects the first-order correlation errors.
The results are consistent with those reported in Table 5.
Moreover, we tested the model by adding lagged Tobin’s
q as control variable. The results are highly comparable
to those of Model 3. Thus, serial correlation of Tobin’s q
does not bias our results.
MIS ×Int. =interaction terms among RDI, OI,
HCI, IP, COMP and square term of
marketing investment intensity
Controls =control variables including firm
size, ROA, S&P quality index, ac-
quisitions, financial crisis, 4-digit
SIC and year dummies
εit =error term, following normal distri-
bution with constant variance σ2.
Robustness tests
Panel data are associated with cross-sectional
and/or time-series eects. If an individual firm or
time has dierent intercept in the regression equa-
tion, then a fixed eects model is preferred. How-
ever, if an individual firm or time has dierent
disturbance, then a random eects model is suit-
able. To select the correct estimation model, we
specify and examine a fixed group and time-eect
model (two-way fixed eects model) and a ran-
dom group and time-eect model (two-way ran-
dom eects model). First, we set a pooled ordinary
least squares (OLS) model as benchmark. Second,
we employ Pagan and Hall’s (1983) test to com-
pare a random eects model with the pooled OLS
model. In a random eects model, error variances
are assumed to be varying across groups and/or
times. We have a general function form of ran-
dom eects model asyit =α+X
itβ+(ui+νit ).
The null hypothesis is that cross-sectional variance
components are zero, H0:σ2
u=0.As shown in
Table 4, the Pagan–Hall test statistic is significant
(χ2(302)Tobinq =908.14, p<0.01), and a random
eects model is preferred to pooled OLS.
We use an incremental F-test to detect the exis-
tence of fixed eects. Given the general function
form of the fixed eects model,yit =(α+ui)+
X
itβ+νit ,the null hypothesis is that intercepts
are constant across groups and/or times, H0:u
1=
u2=... =un−1=0.Based on loss of goodness-
of-fit, the F-statistic rejects the null hypothesis.
Hence, a fixed eects model is preferred to the
pooled OLS model. We use Hausman’s (1978) test
to compare the random eects model with the fixed
eects models (one-way fixed vs. random eects;
two-way fixed vs. random eects). The test results
indicate that the coecients estimated by the rel-
atively consistent fixed eects model are signifi-
cantly dierent from those estimated by the rel-
atively ecient random eects (p <0.01 in both
C2018 British Academy of Management.

Marketing as an Investment in Shareholder Value 13
Table 4. Fixed eects model specification results
Model specification tests: Test statistics p Value Conclusion
Tobin’s q as dependent variable
Random firm eects vs. pooled OLS χ2(302) =908.14 p <0.01 One-way random eects model is preferred
Fixed firm eects vs. pooled OLS F(28, 6625) =16.75 p <0.01 One-way fixed eects model is preferred
Random firm eects vs. fixed firm eects χ2(25) =313.28 p <0.01 One-way fixed eects model is preferred
Fixed firm and time eects vs. random firm
and time eects
χ2(20) =145.24 p <0.01 Two-way fixed eects model is supported
cases). Thus, the fixed eects model is better than
the random eects model.6
Moreover, we replaced the dependent variable
Tobin’s q with Dividends (a firm’s total dividends
value) as an alternate conceptualization of share-
holder value. We composed Models 4, 5 and 6 us-
ing Dividends as dependent variable and used the
same group of explanatory variables as Models 1,
2 and 3, respectively. We report the results of Mod-
els 1–3 in Table 5 and Models 4–6 in Table 6. The
results are comparable.
Results
Eects of marketing investment intensity on
Tobin’s q
Reflecting on Table 5, the magnitude, sign and sig-
nificance of coecients are consistent between the
models. For the control variables, Model 3 shows
that firm size and the financial crisis period have
negative impacts on shareholder value; ROA and
S&P quality index have positive impacts; acquisi-
tion costs have no significant impact. In Model 3
on Tobin’s q, marketing investment intensity has a
linear term (MI) and a quadratic term (MIS). The
linear term defines the rate of change of Tobin’s q
when marketing investment intensity is equal to
zero, while the quadratic term determines both the
direction and steepness of the curvature. As mar-
keting investment intensity equal to zero does not
provide meaningful findings, we standardize inde-
pendent variables and moderators from each value
before running regressions.
We use the full model (Model 3) to interpret the
results.7In Model 3, we observed a positive and
6Results of a Mundlak test (1978) are consistent with the
Hausman results and favour the fixed eects model.
7According to Dawson (2014), results interpretation
should rely on the full model instead of other misspecified
ones, because ‘if the interaction term is significant, then it
does not make sense to interpret versions of the model
significant coecient for marketing investment in-
tensity (MITobin’s q:β=1.490, t =11.82, p <0.001)
and the quadratic term of marketing investment in-
tensity (MISTobin’s q:β=1.495, t =2.89, p <0.01).
The positive quadratic term shows that the cur-
vature is convex, suggesting a U-shaped relation-
ship between marketing investment intensity and
Tobin’s q. Continued increases in marketing in-
vestment intensity will lead to greater increases in
Tobin’s q at accelerating speed.
Following Aiken and West (1991), we plot the
curvilinear relationship between Tobin’s q and
marketing investment intensity in Figure 2 across
scenarios when marketing investment intensity
moves from low to high (±1 standard deviation).
Increasing marketing investment intensity will not
increase Tobin’s q if the proportion of market-
ing investment is low (because the slope of MIS
at −1 SD is not significant, p >0.1). Conversely,
as marketing investment intensity increases, the
positive quadratic eect will strengthen the linear
eect. Moreover, the steepness of the curvilinear
line increases as marketing investment intensity in-
creases in Figure 2. This suggests that the speed of
increase in Tobin’s q will become larger with higher
marketing investment intensity. Therefore, H1 is
supported.
Nonlinear moderating eects
The results of Model 3 show that the interaction
term between MI and RDI and the one between
MIS and RDI are significant at the 0.05 level; the
interaction term between MIS and IP is signifi-
cant at the 0.01 level; the interaction term between
MI and COMP is significant at the 0.01 level; and
the interaction term between MIS and COMP is
that do not include it, as those models will be misspeci-
fied and therefore violating an assumption of regression
analysis’ (p. 13).
C2018 British Academy of Management.

14 M. Hughes et al.
Table 5. Marketing investment intensity and shareholder value
Model 1 Model 2 Model 3
DV: Tobin’s q βtβtβt
Control variables
Firm size −0.224*** −6.59 −0.163*** −6.93 −0.125*** −7.02
ROA 10.171*** 5.75 10.275*** 5.67 10.589*** 6.20
Acquisition 0.000 1.62 0.000 0.90 0.000 0.22
S&P quality index 0.095*** 4.50 0.091*** 4.50 0.087*** 4.44
Financial crisis −0.494** −3.13 −0.473** −3.07 −0.428** −2.67
4-digit SIC code Included Included Included
Year dummy Included Included Included
Main eects
Marketing investment intensity (MI) 0.742*** 8.32 1.281*** 8.30 1.490*** 11.82
R&D investment intensity −0.227*** −4.09 0.092 0.82 0.593*** 3.57
Human capital productivity −0.025 −0.46 0.023 0.42 0.149 0.99
Operation investment intensity 0.146*** 4.57 0.143*** 5.37 0.146*** 6.14
Investment productivity 0.137 0.90 0.213 1.16 0.292 1.93
Competitive intensity 0.219*** 5.32 0.135*** 3.62 0.028 0.58
MIS −0.045*** −3.89 1.495** 2.89
Interaction terms
MI ×R&D investment intensity −0.044*−2.09
MI ×Human capital productivity 0.359 1.48
MI ×Operation investment intensity −0.046 −0.37
MI ×Investment productivity 0.349 1.38
MI ×Competitive intensity −0.338** −2.76
MIS ×R&D investment intensity 0.001*2.01
MIS ×Human capital productivity 0.052 0.43
MIS ×Operation investment intensity 0.003 0.44
MIS ×Investment productivity 0.419** 3.18
MIS ×Competitive intensity 0.047*** 3.89
Log likelihood −19810.3 −19686.4 −19535.8
Number of data points 8469 8469 8469
Akaike’s information criterion 39650.59 39404.74 39123.56
Bayesian information criterion 39756.25 39517.44 39306.7
MIS =marketing investment intensity squared term. All independent variables are at time t−1. Akaike’s information criterion and the
Bayesian information criterion penalize the complexity for model misspecifications.
*p <0.05; **p <0.01; ***p <0.001.
significant at the 0.001 level. Thus, by looking
at the coecients alone, H2 (R&D), H5 (invest-
ment productivity) and H6 (competitive intensity)
are supported. In contrast, neither the respective
linear nor quadratic interaction terms between
MI/MIS and HCI/OI are significant. Therefore,
H3 (human capital) and H4 (operations invest-
ment) are not supported.
To fully understand the support for H2, H5 and
H6, we follow Aiken and West (1991) to visual-
ize the nonlinear moderating eects of our signif-
icant moderator variables (RDI, IP and COMP)
and the curvilinear curves themselves (plotted in
Figure 3). We also test where each pair of curves
in Figure 3 are significantly dierent from each
other. We plot 95% confidence intervals of each
set of two curves in Figure 3(a)–(c) (where CIH
refers to the higher-bound confidence interval and
CIL refers to the lower-bound confidence inter-
val) (Wales et al., 2013). These plots can be inter-
preted as follows: the X-axis indicates how a one-
unit increase in MI and a one-unit increase in RDI
(or IP, COMP) aect marginal performance on the
Y-axis. A U-shaped relationship indicates that the
joint eects decrease down to a certain point and
incline afterwards. As Figure 3 shows, the zone
of significance starts from the dashed vertical line
and continues to the left. At lower and medium
values of the unitary increase in MI, the mod-
erating eects of RDI/IP/COMP are significant.
However, as MI increases to a high level, the mod-
erating eects of RDI/IP/COMP lose significance
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Marketing as an Investment in Shareholder Value 15
Table 6. Marketing investment intensity and dividends
Model 4 Model 5 Model 6
DV: Dividends βtβtβt
Control variables
Firm size 0.458*** 27.98 0.472*** 27.25 0.522*** 30.03
ROA 7.211*** 11.43 7.004*** 10.91 6.734*** 13.84
Acquisition 0.000*** 8.91 0.000*** 8.93 0.000*** 9.13
S&P quality index 0.080*** 8.07 0.081*** 8.13 0.078*** 8.48
Financial crisis −0.220 −1.68 −0.213 −1.64 −0.201 −1.60
4-digit SIC code Included Included Included
Year dummy Included Included Included
Main eects
Marketing investment intensity (MI) 0.079*** 5.35 0.162*** 6.34 0.821*** 25.71
R&D investment intensity −0.006*** −3.83 −0.007** −2.95 0.023*** 3.88
Human capital productivity 0.293*** 17.67 0.301*** 18.20 0.416*** 15.65
Operation investment intensity −0.207*** −25.66 −0.214*** −25.31 −0.221*** −27.53
Investment productivity 0.077*** 3.89 0.103*** 4.02 0.208*** 7.12
Competitive intensity 0.033** 3.02 0.017 1.94 −0.039*** −4.52
MIS −0.001** −2.86 0.057** 2.93
Interaction terms
MI ×R&D investment intensity −0.001*** −6.77
MI ×Human capital productivity 0.185*** 7.33
MI ×Operation investment intensity −0.001 −0.24
MI ×Investment productivity 0.146*** 13.95
MI ×Competitive intensity −0.001 −0.15
MIS ×R&D investment intensity 0.001*** 6.59
MIS ×Human capital productivity −0.009*** −5.71
MIS ×Operation investment intensity 0.001*2.11
MIS ×Investment productivity 0.018*** 3.34
MIS ×Competitive intensity 0.001 1.88
Log likelihood −34033.6 −33961.2 −33761.8
Number of data points 18337 18337 18337
Akaike’s information criterion 68097.26 67954.39 67575.62
Bayesian information criterion 68214.51 68079.46 67778.86
MIS =marketing investment intensity squared term. All independent variables are at time t−1. Akaike’s information criterion and the
Bayesian information criterion penalize the complexity for model misspecifications.
*p <0.05; **p <0.01; ***p <0.001.
because the lines are converging together and
there are no significant dierences between those
lines.
Therefore, H2, H5 and H6 are supported when
MI is at a low-to-medium level. Moreover, to gen-
erate inference from these findings, we further ob-
serve the position of lines. According to the po-
sition of lines in Figure 3, the values of Tobin’s
q are higher when RDI/IP/COMP are high than
when they are low, when MI is at a low-to-medium
level. That is, the lines of the moderators when
they are high are above the lines of the mod-
erators when they are low. Shareholder value is
better when RDI/IP/COMP are high than when
they are low, when MI is at a low-to-medium
level.
Discussion
Given marketing’s struggle against the account-
ability agenda, we sought to evidence the share-
holder value of making marketing investments.
We developed and tested a theoretical framework
predicting the quadratic eects of marketing in-
vestment on shareholder value, its eects in com-
bination with other investments, and whether its
value is contingent on the firm’s investment pro-
ductivity and the competitive intensity it faces.
Our results support a U-shaped relationship be-
tween marketing investment intensity and share-
holder value, moderated by the firm’s R&D invest-
ments, its investment productivity and competitive
intensity, when MI is at a low-to-medium level. We
C2018 British Academy of Management.

16 M. Hughes et al.
Figure 2. The curvilinear influences of marketing investment intensity on Tobin’s q [Colour figure can be viewed at wileyonlinelibrary.com]
conclude that: (1) the shareholder value of mar-
keting investment depends on whether the invest-
ment is sucient and above a threshold, before
which its eects are negative; (2) marketing invest-
ment should be assessed concurrently with R&D
investment; and (3) boundary conditions to mar-
keting investment’s relationship with shareholder
value include competitive intensity and the firm’s
productivity at converting investments into sales.
Without these considerations, marketing may be
scapegoated for failings to do with insucient in-
vestment, co-investment elsewhere in the firm and
the firm’s own malaise in failing to deliver share-
holder value.
Implications for research and theory
We extend the corpus of literature that has sought
to substantiate marketing’s value to senior man-
agement. The quadratic U-shaped eects we re-
veal contribute much-needed theoretical insight
from capital investment theory and the RBV of
the firm. Past research has focused largely on
firm financial performance, which treats only one
problem relevant to senior managers for whom
shareholder value carries considerable importance.
By visualizing marketing investment as capability-
building eorts, we contribute to the literature
by conceptualizing and empirically demonstrating
quadratic eects that have previously been viewed
as linear. Our findings extend those of Dutta,
Narasimhan and Rajiv (1999), Feng, Morgan and
Rego (2017), Homburg et al. (2015), Luo and de
Jong (2012), Luo and Donthu (2006), Mishra and
Modi (2016) and Verhoef and Leeflang (2009) by
connecting marketing investments to shareholder
value.
We show that the eect of marketing investment
intensity on shareholder value depends on under-
standing the interaction it has with other invest-
ments that senior managers can make. The eect
of marketing investment intensity is U-shaped, and
its interaction with other investments can increase
shareholder value across low-to-medium levels of
marketing investment intensity, but less so when
marketing investment intensity is suciently high.
For example, R&D investment intensity interacts
positively with the marketing investment intensity
quadratic term to amplify shareholder value. High
investment in marketing and R&D could lead a
firm to form more complex innovation capabilities,
where it becomes eective at developing and com-
mercializing new product ideas and technologies.
Such combinations reveal the power of market-
ing investment. Marketing investment intensity did
not interact significantly with operations invest-
ment intensity or human capital productivity for
shareholder value. While unexpected, our robust-
ness test indicated that the coecients for opera-
tions (positively) and human capital (negatively)
do moderate the relationship with dividends (as an
alternative measure of shareholder value). This re-
veals the sensitivity of marketing investments to al-
ternative dependent variables.
C2018 British Academy of Management.

Marketing as an Investment in Shareholder Value 17
Figure 3. The conditional eects of moderators: (a) R&D investment intensity; (b) investment productivity; (c) competitive intensity
[Colour figure can be viewed at wileyonlinelibrary.com]
C2018 British Academy of Management.

18 M. Hughes et al.
This discussion yields our first contribution.
By drawing on theories of capital investment, the
RBV and resource combination, we provide new
knowledge about the system of eects market-
ing investment has, with the most important con-
current investments senior managers can make,
in generating longer-term shareholder value. We
evidence how marketing investments can gener-
ate shareholder value in ways that cannot neces-
sarily be foreseen by senior management due to
causal ambiguity. This contribution extends cur-
rent works that have yet to consider these interac-
tions, or when doing so have only examined their
eects on short-term financial performance and
not shareholder value creation (e.g. Feng, Morgan
and Rego, 2017; Germann, Ebbes and Grewal,
2015; Homburg et al., 2015; Katsikeas et al., 2016;
Luo, 2008; Luo and de Jong, 2012; Verhoef and
Leeflang 2009). The impact of marketing invest-
ments can be better understood by considering
their interactions with other concurrent invest-
ments made by the firm.
Our findings highlight the moderating role of
investment productivity and competitive intensity.
Investment productivity captures a firm’s ability to
convert expenditure into sales and is indicative of
its eectiveness at using the capabilities it invests
in to generate greater value. Investment produc-
tivity explains how an injection of financial capi-
tal into a particular activity may otherwise create
outcomes of varying quality. When marketing in-
vestment intensity is low to medium, investment
productivity has a large positive eect on the as-
sociation between marketing investment intensity
and shareholder value, albeit increases in share-
holder value associated with increases in invest-
ment productivity decelerate as marketing invest-
ment intensity increases. The same is seen with
competitive intensity. These findings are impor-
tant, because concerns about the shareholder value
of investing in marketing may be misplaced or su-
perficial if investment productivity and competi-
tive intensity are not taken into account, neglecting
far greater ailments in the firm.
This yields our second contribution. Investment
productivity and competitive intensity are bound-
ary conditions that aect shareholder value cre-
ated from marketing investment. Investment pro-
ductivity represents the firm’s talent at using its
capabilities to generate revenue and yields new
information on why dierences in shareholder
value exist and persist among firms investing in
marketing. The ability of the firm to convert ex-
penditure into revenue can be at fault for market-
ing investment delivering little shareholder value.
This draws attention to the firm itself for the first
time.
Implications for managers
Senior managers should avoid myopic assessments
of the contribution of marketing investment in-
tensity to shareholder value, and account for
contingencies acting on this contribution. Senior
managers should protect and increase marketing
investment intensity because once over the thresh-
old of its quadratic relationship, the eects of mar-
keting investment intensity on shareholder value
are positive and accelerating. Marketing managers
can use this evidence to push for larger budgets,
but with a narrative that speaks directly to the ac-
countability agenda facing senior managers.
Senior managers under pressure to ‘make the
year’ often cut marketing investment and/or in-
vestments in related business activities. This is po-
tentially destructive. Senior managers should align
marketing and R&D, because of the latter’s pos-
itive moderating eect. Operations investments
could also be prioritized. Despite no significant
moderating eect on the relationship between mar-
keting investment intensity and shareholder value,
it exhibited a positive moderating eect on divi-
dends in our robustness test. Marketing managers
should locate allies in these functions to work to-
gether for a greater co-share of financial budgets.
When invested in strategically and in combina-
tion with other investments, marketing can gener-
ate improvements in shareholder value.
The moderating eect of investment productiv-
ity is important for marketing managers and se-
nior managers. When a firm is unable to maximize
revenue given its resource constraints, far greater
problems exist in the firm than in any one func-
tional area. Failings in the firm’s investment pro-
ductivity point to problems in the firm’s strategic
architecture. Pessimism about marketing as an in-
vestment might mask these problems.
Limitations and future research
Our work oers important directions for fu-
ture research. First, we studied US firms only.
Data from other regions would help broaden
generalizability. Second, investments are accurate
C2018 British Academy of Management.

Marketing as an Investment in Shareholder Value 19
proxies for capability-building eorts (Maritan,
2001), but we did not test whether our firms
actually created capabilities or what form those
capabilities took. Stochastic frontier estimation
(SFE) can be used to measure singular capabil-
ities (Dutta, Narasimhan and Rajiv, 2005). Re-
cent meta-analyses of capabilities and perfor-
mance have called for objective measurement to
oset larger eect sizes reported for perceptual
data (Karna, Richter and Riesenkamp, 2016).
Our measures, converted into SFE, oer a way for-
ward. Dierent forms of marketing resources are
also potentially salient (Kyriakopoulos, Hughes
and Hughes, 2016). Third, we do not conceptualize
shareholder value to include share price. COMPU-
STAT only oers quarterly share price informa-
tion. Fourth, some organizations use zero-based
marketing budgets (Ad Age, 2016) and blur the
boundaries between marketing and other func-
tions (Joshi and Gim´
enez, 2014). These resist ob-
jective measurement but represent important fu-
ture research directions. Marketing as a function
has changed as organizational configurations have
altered (Whitler and Morgan, 2017). The diu-
sion of Agile principles, with Guilds, Chapters and
Squads, along with Scrum-based project manage-
ment, often clouds how clearly marketing invest-
ments are aligned with hitherto traditional mar-
keting activities. Scholars should look to capture
the evolution of marketing within organizations,
through qualitative work and simulations, to fur-
ther understand its role in value creation. Fifth,
SG&A as a measure of marketing investment
has limitations. For example, the CMO of Visa,
Antonio Lucio, was recently invited to also lead
Human Resources in an eort to better align the
firm’s strategy with how Visa employees are re-
cruited, developed, retained and rewarded. Such
events create opportunities for marketing but also
management challenges and measurement dicul-
ties.8Sixth, we could not capture firms’ market-
ing strategies. Using a carefully generated list of
terms, computer-aided text analysis of company
documents (e.g. letters to shareholders or 10-K
fillings) could be used to objectively measure mar-
keting strategies in future studies. Seventh, in-
vestments and their configuration may perform
dierently across stages of the technology life-
cycle. Concurrently, investment decisions are not
8We thank an anonymous reviewer for the valuable rec-
ommendations detailed in the fourth and fifth limitations.
made in a vacuum and may be subject to external
shocks and variability due to competitor actions
or seasonal changes. Our data captures the actual
amount spent at the end of a given year and not
the amount spent per month or budgeted per year.
Such variance is potentially important. Quarterly
earnings reports oer some information about in-
come and investments compared to annual state-
ments, but do not contain data on all variables in
our model. Eighth, investment productivity should
equally moderate the eects of other investments
on shareholder value. Finally, we could not con-
trol for CME and CEO turnover with our dataset.
New incoming ocers may change the pattern and
allocation of investment, potentially disrupting the
eects of marketing investment.
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Mathew Hughes is Professor of Entrepreneurship and Innovation at Loughborough University School
of Business and Economics. His research interests lie at the intersection of entrepreneurship and strat-
egy. Mat has published in such excellent journals as Strategic Entrepreneurship Journal,British Journal
of Management and Journal of World Business. He is a member of the editorial boards of Journal of
Management Studies,Journal of Business Venturing,British Journal of Management and International
Journal of Entrepreneurial Venturing.
Paul Hughes is Professor of Strategic Management at Leicester Castle Business School, De Montfort
University. Paul’s research interests are strategic resources and resource-based theory; strategy failure
and adherence to strategy; planning and improvisation in strategy-making; and strategic ambidexterity
through exploration and exploitation. Paul has published in leading academic outlets including Journal
of Product Innovation Management,Journal of World Business,Journal of Business Research,Industrial
Marketing Management,Public Administration and British Journal of Management.
Ji Yan is an Associate Professor in Marketing at Durham University Business School (UK) and a
member of the Centre of Innovation and Technology Management at Durham University Business
School. She holds a PhD in Marketing from the University of Cardi (UK). Her research interests are
in the field of innovation management and international marketing.
Carlos M. P. Sousa is Professor of Marketing and Director of the International Business Group at
Durham University Business School, Durham University (UK). He received his PhD from University
College Dublin (Ireland). His research interests are in the field of international marketing, international
business and innovation management. Carlos is Associate Editor of the International Marketing Review
journal and sits on the editorial board of several international journals.
C2018 British Academy of Management.