The Earnings Effects of Marketing Communication Expenditures During Recessions

This study examines associations between company earnings and marketing communication (i.e., advertising and promotion) expenditures during recessions. Data date to 1971, a period covering five recessionary periods. Using cross-sectional time series analysis, the data reveal that changes in firms' advertising and promotion expenditures are related to changes in firms' current and future earnings, conditional on product classification. In addition, differential effects occur for changes during recessions compared to nonrecessionary periods. Specifically, the link between advertising and promotion spending increases and future earnings is stronger and more immediate during recessions. Decreases in advertising and promotion spending during recessions have a delayed relationship with future earnings.