Market-Based Assets, Value Appropriation Activities, and Cash Flow Outcomes

Abstract

Understanding marketing’s contributions to the financial performance of firms is an important question for the field. A critical performance metric is cash flow vulnerability, or the potential for downside cash flow outcomes relative to a target level. In Essay One, I conceptually develop the cash flow vulnerability construct and distinguish it from a seemingly related construct, cash flow volatility, by tracing their unique nomological networks. I also provide a deeper examination of how market-based assets reduce cash flow vulnerability. Specifically, I systematically describe the mechanisms underlying the protective effect of two market-based assets—brand equity and customer relationships—on cash flow vulnerability.

In Essay Two, my focus is on two value appropriation activities that support brand equity and customer relationships—advertising and receivables management, respectively. I examine how the incremental effect of advertising expenditures and accounts receivable on cash flow outcomes is moderated by two contextual factors: business scope (a firm characteristic) and consumer sentiment (an environmental characteristic). I simultaneously explore three cash flow outcomes—levels, volatility, and vulnerability. To test these relationships, I utilize a dataset composed of over 2,500 firms from 1999 to 2013. I find that the incremental effect of advertising and receivables on cash flow outcomes is contingent on business scope and consumer sentiment and provide managers strategic prescriptions based on these findings. Specifically, (1) narrow business scope firms can maximize cash flow performance via low levels of receivables; high levels of advertising increase cash flow levels and decrease cash flow volatility, but not cash flow vulnerability; (2) broad business scope firms can increase cash flow levels and reduce cash flow vulnerability via low levels of advertising and receivables; however, high levels of advertising and receivables are needed to reduce cash flow volatility; (3) when consumer sentiment is low, firms can maximize cash flow performance via low levels of advertising and receivables; and (4) when consumer sentiment is high, no clear strategy emerges and firms must engage in trade-offs based on their cash flow performance goals.