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Research Article

Institutional ownership and marketing myopic management

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ABSTRACT

While marketing literature highlights both short- and long-term detrimental effects of marketing myopic management on firm performance, understanding of its antecedents is rather limited. This paper aims to determine if a certain level of transient institutional investor ownership influences a firm’s marketing as well as research and development (R&D) investment decisions. Drawing on agency theory, the effects of institutional investor are examined using a two-stage panel logit regression with instrument variables (IV). Empirical results show that a strong presence of short-term institutional investors leads to the practice of marketing myopic management. The transient institutional investors encourage managers to invest less in marketing and R&D as an effort to artificially inflate current-term performance. We propose some policy suggestions that might be used to reduce the practice of myopic management.

JEL CLASSIFICATION:

Acknowledgments

The authors acknowledge the valuable comments and feedback of the associate editor and two anonymous reviewers.

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

1 Following Mizik (Citation2010), we estimate fixed-effects autoregressive panel data forecast models of marketing and R&D myopia. We control for firm-specific effect, the time specific effect, and the industry-specific effect. Both marketing and R&D series exhibit a significant persistence: The first-order own lags are 0.415 (p < .01) and 0.294 (p < .01), respectively. Neither series has unit roots. The forecast errors are used to classify firms into high-, marketing- and R&D myopia groups.

2 We extended that data and conducted an analysis as a robustness check. We find that our results remain similar in a period of 2011–2017. We thank an anonymous reviewer for this suggestion.

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