Institutional ownership and marketing myopic management

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.

KEYWORDS:

• R&D
• marketing
• managerial myopia

JEL CLASSIFICATION:

• M31
• D21

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 (2010), 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.