Organizational Debut on the Public Stage: Marketing Myopia and Initial Public Offerings

Alok R. Saboo (), Anindita Chakravarty () and Rajdeep Grewal ()
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Alok R. Saboo: Center for Excellence in Brand and Customer Management, J. Mack Robinson College of Business, Georgia State University, Atlanta, Georgia 30303
Anindita Chakravarty: Terry College of Business, University of Georgia, Athens, Georgia 30602
Rajdeep Grewal: Kenan-Flagler Business School, University of North Carolina at Chapel Hill, Chapel Hill, North Carolina 27599

Marketing Science, 2016, vol. 35, issue 4, 656-675

Abstract: Successful initial public offerings (IPOs) provide firms with access to valuable resources, but also put pressure on firms to impress potential investors with evidence of their current well-being and prospects for future growth. To impress investors IPO firms might curtail their marketing budgets, which appears to inflate current earnings and provide evidence of current well-being. However, curtailing marketing budgets unexpectedly during an IPO may be a myopic practice, in that the immediate benefits of these budget cuts are offset by their longer-term adverse consequences on financial well-being. The extent of these adverse consequences in turn may be moderated by external firm factors, including strategic alliances and key customer relationships, and internal firm factors, such as the strategic emphasis on value creation versus value appropriation. A sample of 1,095 IPOs during 2000–2011 reveals evidence of myopic marketing practices in more than 37% of the sample. Investors seem misled during IPOs, but they correct their beliefs in the three years following the IPO and penalize these firms. The penalty for myopic marketing budgeting practices also increases with more strategic alliances and a strategic emphasis on value creation versus value appropriation, but it decreases in the presence (versus absence) of key customer relationships.Data, as supplemental material, are available at http://dx.doi.org/10.1287/mksc.2015.0970 .

Keywords: initial public offering; myopic marketing; myopic management; strategic alliances; strategic emphasis; key customer relationships; real activities manipulation; earnings management (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (26)

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