When Marketing Strategy First Meets Wall Street: Marketing Spendings and Firms’ Initial Public Offerings

This article examines the role of marketing in the context of initial public offerings (IPOs), a neglected issue in the extant literature. The results from a large-scale, cross-industry study indicate that firms’ pre-IPO marketing spendings help reduce IPO underpricing and boost IPO trading in the stock market. The econometric models also suggest that these effects are heterogeneous; that is, they are more salient for firms with higher cost reduction efficiency and in markets with a smaller number of historical IPOs. With regard to theory, this research ushers in a greenfield of IPOs, helping build more powerful theories of market-based assets and customer equity. With regard to practice, it builds the case for not cutting marketing before an IPO. Prudent investors may be better able to pick “star” IPOs if they can track pre-IPO marketing spendings and model firm cost reduction efficiency simultaneously. Overall, this article offers fresh implications for the marketing–finance interface, uncovering brand-new IPO-based reasons that marketing can help create shareholder value.