How a CMO Impacts Firm Value
Dr. Min Chung KIM
Assistant Professor of Marketing
Faculty of Business
The Hong Kong Polytechnic University
Having a marketing executive on a top management team (a person we will call the “Chief Marketing Officer” or “CMO”) increases firm value by providing a champion for market orientation throughout the firm and by bringing the voice of the customer into top management team (TMT) deliberations. By enhancing market orientation, a CMO facilitates the firm’s information collection, sharing and use. The resulting richness of market understanding should make the firm’s external communications more valuable to analysts. In such a case, previous literature tells us that a broader set of analysts are likely to follow the firm and firm value is likely to rise. By bringing the voice of the customer into TMT deliberations, a CMO makes vivid the costs associated with cutting marketing spending in order to hit an earnings target. In such a case, the TMT should make fewer myopic marketing decisions and previous literature tells us that fewer myopic marketing decisions should increase firm value. Different from Nath and Mahajan (2008), we study a broad set of firms across fourteen years, and find that, indeed, firms with a CMO are more valuable than firms without. Further, we show that a firm with a CMO is likely to have a larger analyst following than a firm without (consistent with CMOs being associated with firms that provide richer information to those analysts) and such a firm is also likely to make fewer myopic marketing decisions (consistent with CMOs bringing the customer perspective to TMT deliberations). Finally, we show that both analyst following and marketing myopia mediate the CMO’s impact on firm value.