Uncovering the economic benefits of marketing assets financial reporting

Posted on: 25 February 2025 in Research

Dr Peter Guenther and Dr Miriam Guenther’s study reveals key economic benefits in externally reporting marketing assets (MA) valuations, including lower equity financing costs, more realistic stock prices and greater marketing management efficiency.

The investigation shows that although MA accountability is targeted externally, it critically shapes marketing management internally, enabling a greater focus on long-term outcomes and improving overall performance¹.

The results also indicate clear external stakeholder outcomes, including an up to 19% cost of equity reduction and an up to 23% increase in stock price informativeness.

However, the study also finds that it is not necessarily the big marketing spenders, but the medium and small spenders that benefit most, from externally reporting the value of their MA.

From a managerial perspective, the research sheds light on the economic benefits of MA accountability, offering a four-step action plan for marketing executives.

It also provides important insights to inform policymakers on whether to increase reporting requirements for intangible assets, and stresses MA accountability value to improve investment decisions.

The hidden value of intellectual marketing assets

Do you know the financial value of Gatorade or Netflix’s customer base? If your answer is no, you are not alone.

While publicly listed firms are required to deliver updates on income and certain assets (eg equipment, property), they often provide little external information on the value of their MA.

MA are the result of investments in advertising, sales channels, production facilities, servicescapes, etc, that allow businesses to build valuable intangibles, including brands, customer and channel relationships, and marketing licenses.

MA accountability requires continuous valuation of future cash flows expected from these assets, as well as its reporting to external financial market audiences (eg shareholders, investors, market analysts, etc).

Despite MA increasing importance in contemporary business models, firms rarely report on their economic value voluntarily, due to the cost of monitoring, insufficient in-house expertise and a lack of clarity on the benefits of doing so.

As a result, marketing becomes an expense that reduces profit in financial statements, while its economic value remains undocumented, especially regarding its financial long-term impact.

In contrast, investors perceive financial information on MA as highly relevant to decision making, because these assets tend to be fundamental value drivers.

Understanding the effects of MA financial reporting

To better understand the effects of including MA in reporting, Peter, Miriam and Professors Bryan A. Lukas² and Christian Homburg³, analysed a unique dataset that captures Australia’s 2006 move to International Financial Reporting Standards (IFRS), as part of a global effort to harmonise accounting rules.

While the previous Australian Generally Accepted Accounting Principles (GAAP), allowed firms to comprehensively record MA on their balance sheets, this is largely restricted under IFRS⁴.

This creates a natural experiment setting to compare the impact of MA accountability before and after regulatory change⁵.

The analysis uncovered economically significant effects related to ma accountability, especially for less marketing-intensive firms.

MA accountability reduces management myopia and improves governance

The results indicate MA accountability increases short and long-term marketing efficiency by 8% and 10% for marketing-intensive firms (MIFs) - large marketing spenders - respectively.

However, for non-marketing-intensive firms (NMIF) - small and medium spenders - MA reporting resulted in a 17% reduction in short-term efficiency, plus a 22% increase in long-term marketing efficiency.

This suggests that, particularly for small and medium spenders, financial reporting of MA compels management to realign their focus to long-term performance goals for two main reasons.

First, including MA valuations on balance sheets changes what managers are effectively being held accountable for.

Under no ma reporting, marketing managers tend to be held responsible for the short-term profitability of the resources invested within the current period.

However, MA reporting documents the lagged financial benefits of marketing spending, which favours an internal drive to assess and improve MA long-term impact on profitability.

Second, the knowledge derived from systematic and continuous measuring of marketing’s future value contribution helps inform decision making on strategic opportunities to improve MA value.

However, this tends to be underdeveloped when general accounting rules do not require MA reporting, limiting managers’ understanding of key cash flow drivers.

MA accountability can help close this information gap, resulting in a more value-oriented management of marketing performance, with less focus on short-term efficiency goals that can arise in the absence of information on delayed marketing returns.

Easier access to funding and better stock valuations

The results also indicate systematic and transparent estimates on future financial returns from marketing investments help alleviate investor uncertainty and perceived risk.

According to the analysis, MA accountability brings down the cost of equity capital, but its effect is almost five times stronger for small and medium marketing spenders⁶. 

This means specifically for NMIFs, MA reporting reduces investors’ fears by providing a benchmark to assess their own expectations about the company’s future performance and hold management accountable for changes in MA values.

In addition, in the absence of MA accountability, investors may make inaccurate assumptions or be reluctant to fully incorporate MA into firms’ stock prices.

The analysis confirms MA reporting plays a key role in addressing price misvaluation, with significant improvements in the predictive accuracy of 17% for MIFs and 23% for NMIFs.

Access to systematic MA valuations results in well-grounded management expectations, which anchors investor expectations, contributing to stock prices that are more indicative of actual future earnings.

This finding underscores the need for standardised and reliable measurement approaches, as MA valuations that exhibit lower levels of uncertainty are arguably more useful to investors and help reduce stock price distortions.

A four-step action plan for marketing executives

As well as providing valuable insights for standard setters and investors, Peter and Miriam’s study includes a four-step action plan to help chief marketing officers (CMOs) successfully navigate the landscape of MA accountability.

First, they encourage managers to drive improvements in external marketing accountability and claim credit, by following a proactive approach that enhances investor confidence and elevates the role of marketing in the company.

• Extend the focus beyond direct customers and acknowledge the communication needs of financial market ‘consumers’ (ie investors).
• Adopt a recognised marketing asset valuation process that provides a good reference point for investors, such as the ISO 10668 standard on monetary brand valuation.
• As your input is crucial for external reporting, take credit for any firm[1]wide outcomes that extend past typical marketing results, such as improvements in equity financing costs and stock prices.

Second, they remind CMOs of the importance to do it with maximum impact and provide guidelines to ensure the benefits of MA accountability are maximised:

• Use valuation companies for more accurate MA value estimates.
• Base reporting on certain MA types, such as customer relationships or brands, to drive attention to long[1]term marketing efficiency
• Report distribution agreements if your goal is to improve stock price informativeness.
• Include marketing licenses within your brand value reporting.

Third, they recommend CMOs share their views with standard setters, to ensure their valuable perspectives are heard in exchanges that influence external accountability rules:

• Engage with standard setters such as the IFRS’ International Accounting Standards Board and the Financial Accounting Standards Board.
• Raise awareness about external reporting effects on internal decision making.

And finally, they urge marketing executives to take a proactive approach to stay ahead of evolving trends and preempt change:

• Your time to act is now.
• Prepare for new developments that increase investors’ demand for enhanced marketing accountability (eg ISO 20671 brand valuation standard, IASB’s “Intangible Assets” project, evolving regional benchmarks).
• Help build your firm’s capabilities for MA financial reporting accordingly.

1 The results did not indicate a clear effect pattern for firms’ cost of debt irrespective of their marketing intensity.

2 Professor Bryan A. Lukas is Professor of Marketing at University of Manchester.

3 Professor Christian Homburg is Professor of Marketing at University of Mannheim.

4 The sample includes the largest 500 Australian publicly listed firms, from 2001 to 2010, with the accounting regime change coming into effect in 2006.

5 The research team used a natural experiment in conjunction with a difference-indifferences (DID) approach - due to its ability to estimate causal relationships -, and propensity score matching (PSM) – to evaluate the effects of MA accountability based on a comparison with control firms that are similar to a focal firm.

6 The analysis shows a cost of equity capital reduction of 4% for MIFs and 19% for NMIFs.

Dr Peter Guenther Senior Lecturer in Marketing

Dr Miriam Guenther Senior Lecturer in Marketing