Two Essays on the Impact of Marketing Strategy on Financial Market Metrics Using Natural Language Processing




Singh, Sonam

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This dissertation consists of two essays examining the impact of critical aspects of marketing strategy on financial outcomes such as risk, returns and firm value.

Essay 1 examines how a firm's strategy-scope states change over time and identifies the financial consequences of the changes. First, using a grounded-theory framework, a measure of firm-strategy scope is developed using a dataset of 29,340,577 sentences from 60,280 10-K reports of 4,540 B-to-B companies spanning over 21 years. Second, a Hidden Markov Model shows three latent strategy scope states – traditional, relational and diffused that B-to-B firms occupy at any given time with 36% of firms switching their state of strategy scope at least once and 20% switching two or more times over the 21-year period. Third, the article empirically identifies the consequences of changing strategy-scope states. Changing strategy scope poses a tradeoff between lower risk and lower returns for executives. Results show that every time a firm switches its strategy scope state, it reduces idiosyncratic risk by .40 standard deviation, and systematic risk by .21 standard deviation, while decreasing abnormal returns by 6.5%. We find that systematic risk is minimized when transitioning from diffused to relational strategy states but peaks when transitioning from diffused to traditional strategy states. Conversely, idiosyncratic risk is higher when transitioning from relational to diffused state but reaches a low point when transitioning from traditional to diffused state. Abnormal returns are maximized when transitioning from traditional to relational state. Furthermore, services companies experience lower idiosyncratic and systematic risk with higher returns.

Essay 2 addresses the evolving landscape of environmental, social, and governance (ESG) considerations and their impact on firm value. Employing a deep learning model on earnings call transcripts, and using the distinction between material and nonmaterial ESG factors, this research assess their influence on firm value. Contrary to prevailing expectations, an emphasis on nonmaterial ESG factors is found to detrimentally affect firm value, particularly in regulated industries. Conversely, material ESG emphasis yields positive effects, albeit to a lesser extent. The study underscores the importance of strategic ESG integration and offers a practical tool for executives and investors to evaluate and compare companies' ESG strategies and their impact on firm value.

Together, these essays contribute to a nuanced understanding of strategic decision-making and its financial ramifications in an increasingly complex and socially conscious business environment.