The Marketing Capability Premium

The Review of Asset Pricing Studies, Forthcoming

60 Pages Posted: 13 May 2022

See all articles by Tze Chuan 'Chewie' Ang

Tze Chuan 'Chewie' Ang

Deakin University - Department of Finance; Financial Research Network (FIRN)

Tarun Chordia

Emory University - Department of Finance

Van Anh (Vivian) Mai

Deakin University - Faculty of Business and Law

Harminder Singh

Deakin University - School of Accounting, Economics and Finance

Date Written: October 12, 2021

Abstract

Marketing capability refers to a firm’s ability to optimally deploy and integrate different marketing inputs to achieve high sales at low cost. This paper examines whether the value of marketing capability is incorporated into stock returns. High-level marketing capability predicts better future operating performance and stock returns. A marketing capability based long-short portfolio strategy earns an average annual return of 5.16%, a substantial portion of which is earned over subsequent earnings announcements. The return predictability is stronger in stocks with higher valuation uncertainty and lower investor attention. Investors underreact to the value-relevant, but difficult to process, information embedded in marketing capability.

Keywords: Marketing capability, Underreaction, Return predictability, Limited attention, Valuation uncertainty.

JEL Classification: G12, G14, G10, M30

Suggested Citation

Ang, Tze Chuan and Chordia, Tarun and Mai, Van Anh (Vivian) and Singh, Harminder, The Marketing Capability Premium (October 12, 2021). The Review of Asset Pricing Studies, Forthcoming, Available at SSRN: https://ssrn.com/abstract=4096535

Tze Chuan Ang (Contact Author)

Deakin University - Department of Finance ( email )

221 Burwood Highway
Burwood, Victoria 3125
Australia
+61 3 9244 6626 (Phone)

HOME PAGE: http://www.deakin.edu.au/profiles/tze-ang

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia,
Brisbane, Queensland 4071
Australia

HOME PAGE: http://www.firn.org.au

Tarun Chordia

Emory University - Department of Finance ( email )

Atlanta, GA 30322-2710
United States
404-727-1620 (Phone)
404-727-5238 (Fax)

Van Anh (Vivian) Mai

Deakin University - Faculty of Business and Law ( email )

Burwood, Victoria 3215
Australia

Harminder Singh

Deakin University - School of Accounting, Economics and Finance ( email )

221 Burwood Highway
Burwood, Victoria 3215
Australia

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