The Firm Value and Marketing Intensity Decision in Conditions of Financial Constraint: A Comparative Study of the United States and Latin America

Abstract

Marketing managers generally have to make marketing decisions under financial constraints (i.e., the firm’s inability to generate cash flow for investments and marketing), with limited assurance of the outcomes. Little investigation has been made into the effect of financial constraints on marketing intensity and the subsequent effect on firm value and performance, particularly when it is a volatile environment (e.g., Latin America) that creates the financial constraints. Using a conceptual framework grounded in agency theory, the authors develop a model and test it using a panel data set from the United States and five Latin American countries. The results indicate that financial constraints have a negative effect on marketing intensity and ultimately negatively affect firm value and performance. Furthermore, this study confirms the effect of three moderators—market sensitivity, country governance quality, and country economic development distance—on the relationship between financial constraint and marketing intensity and helps explain differences across the United States and Latin America.