Managerial Myopia and Brand Innovation

We examine how U.S. publicly listed firms' brand innovation is sacrificed when managers reduce marketing budgets in order to make short-term earnings targets. Using the newly available U.S. trademark dataset to measure the lifespan of new brands, we find that new brands' survival rate significantly declines following managers' myopic cuts in marketing budgets. This effect is more pronounced for firms in industries with high advertising expenditures and in more reputation-sensitive industries. We further exploit an exogenous increase in managers' myopia in response to a reduction in litigation risk for firms headquartered in the Ninth Circuit and find consistent results. Additional analyses show that the survival rate of new brands has a significantly positive impact on future sales growth and profitability, confirming the value-relevance of brand innovation and our findings