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

Author

Listed:
  • Victoria L. Hodgson

    (Director, The Clever Stuff, Rushcutters Bay, NSW, 2011.)

  • Allan Hodgson

    (Amsterdam Business School, The University of Amsterdam, Roeterstraat 11, Amsterdam 1018WB.)

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.

Suggested Citation

  • Victoria L. Hodgson & Allan Hodgson, 2008. "Marketing Communication Expenditures and Financial Capital—The Impact of Marketing as an Option," Australian Journal of Management, Australian School of Business, vol. 33(2), pages 333-353, December.
    • Handle: RePEc:sae:ausman:v:33:y:2008:i:2:p:333-353
    DOI: 10.1177/031289620803300206
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    References listed on IDEAS

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