Abstract
To meet short-term earnings targets, firms often engage in real earnings management practices (REM) such as reducing advertising expenses and running sales promotions. Since these practices can hinder Chief Marketing Officers (CMOs) in building and maintaining market-based assets of firms, the authors hypothesize that firms with CMOs will be less likely to engage in REM. Using publicly available secondary data, the authors show that CMO presence decreases a firm’s propensity for REM and that the CMO’s ability and willingness to deter REM depend on CEO power and market power of the firm, respectively. The authors also conduct a survey of marketing personnel to extend the first study by examining marketing expenditures other than advertising (e.g., market research) and the firm’s revenue management actions (e.g., sales promotions). The authors find that CMO presence reduces the propensity for REM by cutting marketing expenditures but has no impact on REM through sales promotions.
Similar content being viewed by others
Notes
We thank the review team for suggesting that all CMOs are not the same and that the CMO role may differ across industries.
References
Acharya, V., Myers, S., & Rajan, R. (2011). The internal governance of firms. The Journal of Finance, 66(3), 689–720.
Ahearne, M. J., Boichuk, J. P., Chapman, C. J., & Steenburgh, T. J. (2016). Real earnings management in sales. Journal of Accounting Research, 54(5), 1233–1266.
Bansal, N., Joseph, K., Ma, M., & Wintoki, M. B. (2017). Do CMO incentives matter? An empirical investigation of CMO compensation and its impact on firm performance. Management Science, 63(6), 1993–2015.
Bhojraj, S., Hribar, P., Picconi, M., & Mcinnis, J. (2009). Making sense of cents: An examination of firms that marginally miss or beat analyst forecasts. The Journal of Finance, 64(5), 2361–2388.
Chakravarty, A., & Grewal, R. (2011). The stock market in the driver’s seat! Implications for R&D and marketing. Management Science, 57(9), 1594–1609.
Cheng, Q., Lee, J., & Shevlin, T. (2016). Internal governance and real earnings management. The Accounting Review, 91(4), 1051–1085.
Court, D. (2007). The evolving role of the CMO. McKinsey & Company. https://www.mckinsey.com/business-functions/marketing-and-sales/our-insights/the-evolving-role-of-the-cmo. Accessed 13 Jan 2021
Edeling, A., & Himme, A. (2018). When does market share matter? New empirical generalizations from a meta-analysis of the market share–performance relationship. Journal of Marketing, 82(3), 1–24.
Fama, E. F., & Jensen, M. C. (1983). Separation of ownership and control. The Journal of Law and Economics, 26(2), 301–325.
Germann, F., Ebbes, P., & Grewal, R. (2015). The Chief Marketing Officer matters! Journal of Marketing, 79(3), 1–22.
Graham, J., Harvey, C., & Rajagopal, S. (2005). The economic implications of corporate financial reporting. Journal of Accounting and Economics, 40, 3–73.
Gunny, K. A. (2005). What are the consequences of real earnings management?.
Haynes, K. T., & Hillman, A. (2010). The effect of board capital and CEO power on strategic change. Strategic Management Journal, 31(11), 1145–1163.
Keltner, D., Gruenfeld, D. H., & Anderson, C. (2003). Power, approach, and inhibition: Recent findings on the determinants and consequences of social power. Psychological Review, 110(10), 265–284.
Kothari, S. P., Mizik, N., & Roychowdhury, S. (2016). Managing for the moment: The role of real activity versus accruals earnings management in SEO valuation. The Accounting Review, 91(2), 559–586.
Krishnan, G. V., & Visvanathan, G. (2007). Does the SOX definition of an accounting expert matter? The association between audit committee directors’ accounting expertise and accounting conservatism. Available at SSRN 866884.
Lee, S., Matsunaga, S. R., & Park, C. W. (2012). Management forecast accuracy and CEO turnover. The Accounting Review, 87(6), 2095–2122.
Mizik, N. (2010). The theory and practice of myopic management. Journal of Marketing Research, 47(4), 594–611.
Mizik, N., & Jacobson, R. (2007). Myopic marketing management: Evidence of the phenomenon and its long-term performance consequences in the SEO context. Marketing Science, 26(3), 361–379.
Moorman, C. (n.d.). The CMO Survey. The CMO Survey.
Nath, P., & Mahajan, V. (2008). Chief Marketing Officers: A study of their presence in firms’ top management teams. Journal of Marketing, 72(1), 65–81.
Ocasio, W. (1994). Political dynamics and the circulation of power: CEO succession in U.S. Industrial Corporations, 1960–1990. Administrative Science Quarterly, 39(2), 285–312.
Rappleye, E. (2017). 85% of American CEOs are promoted from within. Becker’s Hospital Review. https://www.beckershospitalreview.com/hospital-management-administration/85-of-american-ceos-are-promoted-from-within.html. Accessed 13 Jan 2021
Saboo, A. R., Chakravarty, A., & Grewal, R. (2016). Organizational debut on the public stage: Marketing myopia and initial public offerings. Marketing Science, 35(4), 656–675.
Shen, W., & Cannella, A. A. (2002). Revisiting the performance consequences of CEO succession: The impacts of successor type, post-succession senior executive turnover, and departing CEO tenure. Academy of Management Journal, 45(4), 717–733.
Srinivasan, R., & Ramani, N. (2019). With power comes responsibility: How powerful marketing departments can help prevent myopic management. Journal of Marketing, 83(3), 108–125.
Zang, A. (2012). Evidence on the trade-off between real activities manipulation and accrual-based earnings management. The Accounting Review, 87(2), 675–703.
Zhang, Y. (2006). The presence of a separate COO/president and its impact on strategic change and CEO dismissal. Strategic Management Journal, 27(3), 283–300.
Author information
Authors and Affiliations
Corresponding author
Additional information
Publisher’s note
Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.
Supplementary Information
ESM 1
(DOCX 5.70 mb)
Rights and permissions
About this article
Cite this article
Kaur, P., Ramaswami, S. & Bommaraju, R. The Chief Marketing Officer: an antidote to myopic earnings management practices. Mark Lett 32, 165–178 (2021). https://doi.org/10.1007/s11002-021-09560-0
Accepted:
Published:
Issue Date:
DOI: https://doi.org/10.1007/s11002-021-09560-0