Marketing Communication Expenditures and Financial Capital—The Impact of Marketing as an Option

Victoria L. Hodgson and Allan Hodgson
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Victoria L. Hodgson: Director, The Clever Stuff, Rushcutters Bay, NSW, 2011.
Allan Hodgson: Amsterdam Business School, The University of Amsterdam, Roeterstraat 11, Amsterdam 1018WB.

Australian Journal of Management, 2008, vol. 33, issue 2, 333-353

Abstract: This paper examines the financial effectiveness of marketing communication expenditure (MCE) as an instrument to increase risk-weighted capital. We nest a cross-sectional time-series panel model within the risk-adjusted earnings principles of Ohlson (1995), and apply the model to a dataset of NSW credit unions during a period of regulatory intervention that abruptly required management to meet minimum capital thresholds. Because they cannot issue equity, and other income increasing options conflicted with credit union philosophy, this provided a strong incentive to use MCE as an option to rapidly increase revenue (and capital). We find MCE was financially ineffective in small credit unions, had a positive marketing leverage impact in large credit unions, and required regular renewal. Our study makes several contributions by: (i) disaggregating and testing the financial impact of marketing; (ii) applying a risk-adjusted model generally applicable to non-listed firms; (iii) informing on the capitalisation/expensing debate; (iv) highlighting when and why MCE as a real option is financially (in)effective; and, (v) adding to the growing interface in the financial/marketing literature.

Keywords: FINANCIAL EFFECTIVENESS OF MARKETING; MARKETING LEVERAGE; MARKETING OPTION (search for similar items in EconPapers)
Date: 2008
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Persistent link: https://EconPapers.repec.org/RePEc:sae:ausman:v:33:y:2008:i:2:p:333-353

DOI: 10.1177/031289620803300206

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