The Direct and Indirect Effects of Advertising Spending on FirmValue

ness should be run to maximize the return on shareholders’ investment, and shareholder value analysis (SVA) is fast becoming a new standard for judging managerial action. In this changing scenario, in which short-term accounting profits are giving way to SVA, it is advisable that all investments made by managers be viewed in the context of shareholder returns. Thus, every investment, be it in the area of operations, human resources, or marketing, may now need to be justified from the SVA perspective. The common yardstick that most investors use in this context is the share price, or more generally, the wealth created by a firm is measured by its market capitalization. This evolution presents a great opportunity for marketing. Indeed, by focusing on short-term profits at the expense of intangible assets, traditional accounting may marginalize marketing. In contrast, SVA takes a long-term perspective and encourages managers to make profitable investments. To capitalize on this opportunity, marketing will need to justify its budgets in shareholder value terms. This is a difficult task because the goals of marketing are traditionally formulated in customer attitude or sales performance terms. Furthermore, marketing may affect business performance in both tangible and intangible ways. Consequently, marketing budgets are vulnerable, especially advertising spending