Focal versus Background Goals in Investment Decision-Making: Trading Off Financial Returns for Self-Expression?

Individuals generally have a strong, normative focal goal when making investment decisions: to maximize risk-adjusted financial returns. Nevertheless, investment decisions may also be influenced by other goals that operate in the background, such as individuals’ desire to express themselves. This research examines the interplay between focal and background goals in investment decision-making and identifies several conditions that lead individuals to trade off financial returns for the satisfaction of background goals. Three experiments show that individuals who have (1) been subtly primed with self-expressive background goals, or (2) experienced progress towards the focal goal of financial returns, are willing to accept lower financial returns for the opportunity to invest in stocks that allow for increased self-expression. Further, while subtly primed background goals exert a non-normative influence on investment decisions, (3) more explicit cues about an investment’s background goal-instrumentality create a backlash effect, and decrease individuals’ willingness to trade off financial returns.

Involved People: Dr. A.O.I. Hoffmann, Dr. Jaakko Aspara, Prof. Dr. Amitav Chakravarti

Marketing activities & risk adjusted cost of capital

Contractual agreements with channel partners have an effect on cash flow volatility and as such on shareholder value. If a company manages to reduce its cash flow volatility then it is able to improve its shareholder value. This research is about the factors which influence contractual agreements with channel partners. The influence of external environments (focus on shareholder value) and internal environments (managerial risk attitudes and perceptions) are examined in the domain of a food channel. The paper shows that front-line managers are able to reduce cash flow volatility and by doing so, improve shareholder value. In case of contract preference incongruence a hedge solution is proposed to overcome this obstacle.

Involved People: Sjoerd Hommes & Prof. dr. ir Joost M.E. Pennings

Investor Relations

This project develops and empirically tests a conceptual framework that shows the role of marketing in managing investor relations. The framework complements existing literature on the marketing-finance interface and explicitly includes investor relationships as market-based assets. The framework provides firms with tools to analyze and manage investor relations in order to improve financial performance and increase shareholder value.

Involved people: Dr. A.O.I. Hoffmann, Prof. Dr. Ir. J.M.E. Pennings and S. Wies

Channel Relations

This project develops and empirically tests a conceptual framework which links channel contracting to shareholder value. The framework complements existing marketing-finance literature by explicitly including channel contract relationships as market-based assets that can be managed to reduce cash flow volatility and increase shareholder value.

In a field study of producers, wholesalers, and processors, the framework shows how shareholder value can be enhanced by using financial facilitating services, such as derivatives, to reduce cash flow volatility. Moreover, this study shows how front-line marketing managers can use such financial services as conflict-solving tools in case of incongruent contract preferences between channel members. In addition, providing a framework that integrates marketing, finance, and strategy, this project offers tactical insights to help front-line managers.

Involved people: Prof. Dr. Ir. J.M.E. Pennings, Dr. A.O.I. Hoffmann and Prof. Dr. Brian Wansink

Market Sentiment

Everybody seems to believe that investor sentiment affects stock prices, but no one seems to have a precise definition of what investor sentiment is: Is it the sentiment of retail investors? Is it the sentiment of institutional investors? Is it the sentiment of all investors together?

The purpose of this project is to define investor sentiment, establish how it affects prices, and determine how to measure it and ultimately how to predict it.

Thus far, individual investors are considered by the finance profession to be homogenous in its effects on the stock market. Their collective behavior is measured by one single measure termed “sentiment index” – this is what the Postbank does with its “Beleggersbarometer”. However, it is probable that individual investors do not act alike, so a more specific sentiment measurement tool can be developed.

To construct this new sentiment indicator, it is necessary to take an approach as of yet unperformed in the field of finance: to psychometrically examine individuals’ latent behavior and relate it to their observable decision-making. Basically, we are going to look at a class of investors that no one has looked at before, measure what makes them different, and we will use what we find to offer better sentiment solutions than the ones that currently exist.

Although it may seem that this research is primarily theory oriented, that is not the case. This research is rooted in our dedication to practical business applicability. The findings will contribute to business innovations such as: Marketing: improved, more discrete, and cheaper client profiling, Product Development: client-based improvements for trading platforms, Investor Training: seminars that are “ahead of the competition” Wealth Management: better targeting of investment advice and portfolio management

Involved people: Drs. R. Merrin, Prof. Dr. Ir. J.M.E. Pennings, Dr. A.O.I. Hoffmann

Interdepartmental MF integration

"Marketing will assume a central role in corporate strategy only when its long-range contributions to firm growth are recognized by top management” (Webster and Ganesan 2003). In fact, this argues for interdisciplinary teams and emphasizes the importance of establishing the marketing-finance interface. To the best of our knowledge no research is conducted to investigate whether Marketing-Finance (M-F) integration (i.e. interdepartmental integration) within an organization contributes to business performance. Interdepartmental integration is defined as the extent to which specialized and complementary departments interact and collaborate in a way that benefits are produced to them that exceed individually produced benefits of the departments.

We approach the research question with a focus on the relational characteristics, aspects of organizational structure and the consequences of M-F integration. In particular, our objectives are to develop a measure that measures actual interdepartmental integration in terms of contribution to financial firm performance; to investigate whether relational characteristics and aspects of organizational structure have an influence on the degree of M-F integration; and, to investigate whether there is a gap between perceived versus actual integration. The results of our study are valuable for top management when (re)-designing their organizations, since it will help them to understand how and to what extent they can and need to integrate the marketing and finance departments. We provide an understanding why M-F integration is important for some industries and not for others by evaluating the drivers of M-F integration. The study contributes to theory by linking M-F integration to overall business performance using measures that measure both perceptual and actual interdepartmental integration.

We will develop a measure that measures actual interdepartmental integration in terms of contribution to financial performance of the firm. In addition we measure perceived interdepartmental integration, for which the items are based on in-depth interviews with several marketing and finance managers from different companies. Survey data will be collected from marketing and finance managers. In addition we collect accounting data to measure performance and interdepartmental integration. Since data collection will be done globally and across industries, country and industry differences will be explored. The data will be analyzed using Structural Equation Modeling.

Involved people: Ir. R. Hoogeboom and Prof. Dr. Ir. J.M.E. Pennings

New Product Development

With a constant new stream of financial services coming to the market, each often more exotic and complicated than the last, the financial services industry, which includes commodity derivatives exchanges, brokerage houses and banks providing price risk reduction services (the so-called hedging services), is one of the fastest growing industries. In order to assure survival, these companies show a rapid product innovation. However, for commodity derivatives the risk of failure is considerable.

This project presents a new and integrative marketing-finance approach towards commodity derivatives management, which makes it easier to gain insight into the viability of new commodity derivatives before introduction, to assess and improve the viability of existing commodity derivatives and to provide the managers of the financial services industry with information about the tools they can use in the product development process of commodity derivatives.

Involved people: Prof. Dr. Ir. J.M.E. Pennings and Dr. A.O.I. Hoffmann