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- W2070063501 abstract "Research linking marketing to financial performance has predominantly focused on how marketing assets and actions add value. We argue that it is equally important to understand how marketing decisions can destroy firm value. Prior research has indicated that negative events vary greatly in their indirect costs to the firm. Based on established theory and in-depth interviews with practitioners, we identify a set of factors that can explain the heterogeneity in the magnitude of indirect costs associated with negative marketing-related events. Specifically, we address how shareholder value is impacted by the regulatory exposure of deceptive marketing, which carries no direct cost to the firm. Using an event study, our analysis shows that incidents of exposed deceptive marketing are associated with significant negative abnormal returns amounting to a drop of 1%, which translates into an $86M wealth loss for the median-sized firm in our sample. In explaining the variation in magnitude of the impact between events, we find that event characteristics are generally more significant than firm and brand characteristics. When deception is highly egregious or directed at vulnerable populations, firm value is more negatively impacted than when the potential to mislead and harm is not readily verifiable. Furthermore, when the cited product has substantial brand market share, the levels of egregiousness and target audience explain substantially more of the variation in event impact than when brand market share is low. The results are robust to alternative stock portfolio-based measures of abnormal returns, model specification, heteroskedasticity, and examination of risk. Our framework and analysis have implications for Wall Street executives, Main Street managers, academic researchers, and public policy." @default.
- W2070063501 created "2016-06-24" @default.
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- W2070063501 date "2009-07-09" @default.
- W2070063501 modified "2023-09-28" @default.
- W2070063501 title "Regulatory Exposure of Deceptive Marketing and its Impact on Firm Value" @default.
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