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Taming polysemous signals: The role of marketing intensity on the relationship between financial leverage and firm performance

Title
Taming polysemous signals: The role of marketing intensity on the relationship between financial leverage and firm performance
Authors
Bae J.Kim S.-J.Oh H.
Ewha Authors
김상준
SCOPUS Author ID
김상준scopus
Issue Date
2017
Journal Title
Review of Financial Economics
ISSN
1058-3300JCR Link
Citation
Review of Financial Economics vol. 33, pp. 29 - 40
Keywords
Firm financial leverageFirm valuationMarketing intensitySignaling
Publisher
Elsevier Inc.
Indexed
SCOPUS scopus
Document Type
Article
Abstract
This study attempts to reconcile the two strands of research on the impacts of financial leverage on firm valuation. The prior literature has shown that financial leverage has a polysemous effect. In other words, it provides two opposing signals of firm performance (i.e., financial distress vs. a driver of positive change in a firm's prospects). Given that the effects of financial leverage are contradictory, we specify how these divergent signals appear and propose that there is a non-monotonic effect of financial leverage on firm valuation. The study also shows that marketing activities can be strategically implemented to tame these polysemous signals. Marketing activities are costly actions for a firm, especially one in an adverse environment with high leverage, and are rewarded in terms of firm valuation. Therefore, marketing activities can help reinforce the driver signal and alleviate the distress signal of financial leverage, thus increasing firm valuation. This study finds a U-shaped relationship between financial leverage and Tobin's q and a positive moderating effect of marketing intensity on the curvilinear relationship. © 2016 Elsevier Inc.
DOI
10.1016/j.rfe.2016.12.002
Appears in Collections:
경영대학 > 경영학전공 > Journal papers
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