Limitations and Further Research

Our research is not without its limitations. Although previ- ous work (e.g., Luo 2008; Mizik 2010; Mizik and Jacobson 2007) has commonly used our measure of marketing spending (SG&A expenditure minus R&D expenditure), we acknowledge that it includes nonmarketing expenses, such as administrative overhead and legal expenditures. On the one hand, it is not possible to isolate marketing expenditures using Compustat data. On the other hand, a key advantage of using Compustat is that it provides comprehensive data on SG&A and R&D expenditures for many firms across a variety of industries.

Another limitation of our study is that our measure of strategic flexibility (i.e., financial leverage) does not fully reflect the extent to which a company has a flexible organi- zational structure. Operational and managerial flexibility are also important determinants of a company’s overall strategic flexibility (Aaker and Mascarenhas 1984). How- ever, the data on those dimensions of flexibility are not readily available. Future studies could survey industry experts or use statements in the companies’ annual reports to operationalize strategic flexibility on a broader scale. Although this alternative approach would allow for a more comprehensive and complete examination of the role of strategic flexibility on firm performance, it relies less on objective measures. Given that the strategic flexibility is closely linked to marketing and firm value, further research should explore a broader conceptualization of flexibility and alternative ways to measure it.

Moreover, although we note that increased marketing spending can signal both higher and less risky future cash flows, we do not distinguish the two channels of value crea- tion in our tests. It would be worthwhile to examine the potential risk reduction implications of enhanced postoffering marketing budgets, particularly during turbulent economic conditions. Note that Carlson, Fisher, and Giammarino (2010) reveal that systematic risk declines during the post- SEO period. However, they do not examine how marketing spending relates to changes in postoffering systematic risk. Future studies could explore the role of marketing spending and strategic flexibility in changing risk dynamics around equity offerings.

It is also worth noting that our study does not provide any direct evidence about the extent to which marketing managers are involved in the process of equity offerings and in determining the use of funds. Our results, however, suggest that marketing managers can be instrumental in help- ing issuers use offer proceeds in a value-enhancing manner. Therefore, it would be fruitful to examine issuing firms’ practices by conducting surveys or in-depth interviews with marketing and finance executives. Finally, we only focus on IPOs and SEOs, which are leverage-decreasing financing events that enhance firms’ strategic flexibility. However, it would be worthwhile to examine how leverage-increasing events such as debt offerings (capital inflow) or share repur- chases (capital outflow) affect marketing strategy and how investors respond to changes in firms’ marketing expenditures around these events.

Conclusion

addition, the interactive influence of marketing expendi- To enhance their marketing expenditures, IPO and SEO

tures and strategic flexibility of rivals on firm value is more firms allocate significant amounts of capital raised through

salient in the postoffering period than in other periods. their equity offerings. However, the link between these mar-

These findings add significantly to the field’s understanding keting expenditures and firm value is heterogenous across

of how marketing and finance decisions interact at the cor- firms and market conditions. Only those issuers competing

porate level, specifically offering new insights into how against rivals with relatively less strategic flexibility benefit

corporate financial structure affects marketing strategy as from the adoption of an aggressive marketing strategy. In

well as overall firm value.

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Limitations and Further Research