Voluntary disclosure theory suggests that disclosure of information beyond mandatory criteria helps stakeholders make decisions (McIlkenny & Persaud, 2017), reduces the cost of external financing, and improves a company’s ability to leverage capital for potentially profitable projects (Verrecchia, 2001). Voluntary disclosure theory also presents the effects of the tension between the value of more detailed information for the investor and the costs of this disclosure (Dye, 2001). As both markets - capital and products (competitors) - observe the disclosures of companies (Simpson, 2008), the voluntary disclosure theory explains and predicts that the decision to disclose organizational information involves a trade-off between the possibility of strong competitors and foster benefits of a more reliable assessment for stakeholders (Dye, 2001). When the costs of disclosure outweigh the benefits, there is a potential barrier to broader disclosures (Verrecchia, 2001).

Voluntary disclosure theory argues that companies’ financial reports should disclose marketing information because they reduce the uncertainty of investors and analysts (Bayer et al., 2017; Sidhu & Roberts, 2008), which makes this disclosure a relevant resource for the financial market (Stewart, 2009). However, current accounting standards suggest, without requiring, that the notes or management report disclose (a) the marketing assets off-balance sheet, (b) the resources and budgets directed to marketing investments, (c) information related to the growth or decrease of marketing investments and (d) the respective effects on the company’s results, and (e) the investment outlook for the next periods and the expected future results for the current investments (see more details in Appendix A). Therefore, any disclosure about the financial resources that were employed or obtained through marketing efforts, or even any non-financial measure corresponding to these activities, is voluntary disclosure (McIlkenny & Persaud, 2017).

Previous studies reported that the breadth of voluntary disclosure of marketing investments is linked to operating results (Simpson, 2008), market value (McIlkenny & Persaud, 2017) and the ‘herd effect’ in the voluntary information disclosure (Shi et al., 2021). However, when a company does not disclose marketing investments, investors cannot assess marketing expenditures (Shi et al., 2021). Based on this dilemma, the analysis of the determinants of the marketing investment disclosure is important because the lack of information generates doubts on the financial market and can impose real costs on investors (Simpson, 2008).

Marketing investment intensity is defined as the financial value of investments in the most varied marketing activities (McIlkenny & Persaud, 2017), which influences the company’s market value because it impacts sales revenue and profit (Bae et al., 2017). There is also a relationship between the marketing investment intensity and the assessment of the company by investors (Oh, Gulen, Kim, & Robinson, 2016). For example, Luo (2008) and Fine et al. (2017) found that the increase in the marketing investment intensity in the period before the initial public offering (IPO) helps reduce information asymmetry and results in less underpricing.

Although the literature demonstrates that the marketing investment intensity is capable of influencing the company’s market value because of the ability to signal investors to the firm’s financial status (Bae et al., 2017; Markovitch et al., 2020), there is little discussion about the relationship between marketing investment intensity and the level of disclosure from the empirical perspective. Marketing investment is relevant information for stakeholders because the benefits of marketing assets (Srivastava, Shervani, & Fahey, 1998) are not immediately reflected in accounting performance and, therefore, more specific and detailed information about these investments can serve as additional signals about the company’s future performance (Mizik, 2010).

As uncertainty generates problems of adverse selection, companies with greater investment intensity can carry out more marketing investment disclosure to reduce the asymmetry between the agent and the principal. Ma et al. (2017) found an association between the marketing investment intensity and the transparency of company information after an IPO. These positive results are expected because companies that invest more in marketing assets (Srivastava et al., 1998) can have competitive advantages and prioritize transparency and fearless competition (Mohamed & Schwienbacher, 2016). However, there is a lack of studies that consider organizational life cycles (Shi et al., 2021) as moderating variables to explain the effects of the volume of investments in disclosure.

The life cycle of companies is defined in five phases, being birth, growth, maturity, turbulence, and decline (Dickinson, 2011), although some authors add phases such as birth-growth and turbulence-decline (Mikosz, Roma, Louzada, & Macedo, 2019). Each company is in a specific life cycle and these cycles vary in terms of financing needs, sales growth, profitability, the amount of resources available, and uncertainty regarding the environment (Cantrell & Dickinson, 2020).

In this article, we specifically discuss the initial phase, which concentrates on the stages of birth and growth, in which new products normally enter the market and the firm arouses the attention of competitors, who start monitoring it (Costa, Macedo, Yokoyama, & Almeida, 2017). When companies move from the birth stage to the growth stage, the pressure from competitors increases and there is a need to promote products on the market (Dickinson, 2011). To reach and sustain the birth and growth phases, companies invest in expansion and market segmentation, expanding the need for external financing (Kabir et al., 2020).

Companies in the birth and growth phases commonly have few financial resources available (Habib & Hassan, 2019). However, the request for financing by companies in these phases is viewed with caution by the financial market, since (a) the results forecasts are of limited use due to the lack of history, (b) there are wide uncertainties regarding the firm’s continuity, and (c) long-term planning may not be intentionally detailed so as not to attract the attention of competitors (Kabir et al., 2020). Thus, the search for external capital and the need to protect strategies can trigger different effects in the decision to disclose investment information during the birth and growth phases (Bayer et al., 2017).

On the one hand, the literature has shown that firms in the growth phase are more likely to disclose information on marketing investments to attract investors (Mohamed & Schwienbacher, 2016) and there is also evidence that the disclosure policy is broader when the firm is financed mainly by external capital (Khurana, Pereira, & Martin, 2006). On the other hand, the literature showed that companies in the birth and growth phases face more uncertainties than other companies, greater difficulty in carrying out voluntary disclosures (Kabir et al., 2020), inability to fully capture the benefits of their marketing efforts innovation (Cantrell & Dickinson, 2020) and more complicated and ambiguous communication (Bakarich et al., 2019).

We suggest that the greater the marketing investment intensity, the greater the level of marketing investment disclosure. Based on the voluntary disclosure theory (McIlkenny & Persaud, 2017), this effect occurs because marketing investments can affect the company’s value - increasing profits through increased sales increase the company’s intangible value assessed by stakeholders (Joshi & Hanssens, 2010; Sidhu & Roberts, 2008; Srivastava et al., 1998). Companies that employ high volumes of marketing investments call the attention of the financial market, being charged for a higher level of transparency in disclosure (Stewart, 2009) to allow an assessment of their equity (Sidhu & Roberts, 2008). Therefore, when increasing the marketing investment intensity, there is a greater need for information for the stakeholder to invest (Bae et al., 2017; Markovitch et al., 2020), reducing the information asymmetry between economic agents (Kabir et al., 2020) and generating greater data transparency (Dye, 2001). Therefore, we present the following hypothesis:

Hypothesis 1: The greater the marketing investment intensity, the greater the level of marketing investment disclosure.

We expect companies that are in the birth and growth stages to increase the marketing investment disclosure due to the more severe levels of uncertainty in investment results (Dickinson, 2011). Companies in the stages of birth and growth face problems such as lack of resources, low profitability, low remuneration for investors, among others (Costa et al., 2017), and have higher levels of information asymmetry compared to companies that are in other phases of the life cycle (Ma et al., 2017). As companies that face serious information asymmetry problems benefit most from communicating ‘good’ news to the market (Mohamed & Schwienbacher, 2016), we expect companies that are in the birth and growth phases to also work harder to communicate the fundamentals of marketing investments to the market, minimizing the problem of asymmetry.

In addition, companies that are in the birth and growth stages have greater financial needs (Dickinson, 2011) and depend on external funds to finance their investments (Cantrell & Dickinson, 2020). Consequently, the demand for transparency and accountability in financing (Dye, 2001) increases as companies seek external capital to sustain their investments (Stewart, 2009). Greater transparency helps companies reduce information asymmetries (Khurana et al., 2006) and offers security to investors, minimizing agency problems (Ma et al., 2017). Therefore, companies that are in the birth and growth phases tend to disclose more information than companies in other phases (Kabir et al., 2020). Therefore:

Hypothesis 2: Companies that are in the stages of birth and growth (vs. the stages of maturity, turbulence, and decline) of the life cycle have higher levels of marketing investment disclosure.

We propose that when the marketing investment intensity increases, the level of marketing investment disclosure decreases in companies that are in the stages of birth and growth (compared with mature or turbulent-declining companies). This hypothesis is centered on the recognition that companies, even though they are in the same stage of the life cycle, can adopt different strategies and different amplitudes of marketing investments (Cantrell & Dickinson, 2020; McIlkenny & Persaud, 2017) directing to specific postures regarding the information disclosure (Verrecchia, 2001).

The positive effect of the relationship between the marketing investments intensity and the level of investments disclosure changes to a negative effect by moderating the life cycle phases because companies in the birth and growth phases attract the attention of competitors and tend to be more competitive (Cantrell & Dickinson, 2020). Competitors use marketing investment information in several ways preventing an accurate prediction of the consequences of such disclosure (Shi et al., 2021). For this reason, companies in the birth and growth phases of the life cycle may decide to ‘hide’ information regarding the use of high marketing investments. Another argument is that companies that are in the stages of birth and growth have difficulties convincing the market that the high investments presented will generate performance in the future and therefore can seek ways to omit those (Krishnan et al., 2021).

The voluntary disclosure theory proposes that companies in the stages of birth and growth have incentives not to make disclosures that could harm their competitive position in the market (Verrecchia, 2001). Although voluntary disclosures of high marketing investments are linked to companies’ profit and equity (McIlkenny & Persaud, 2017), such information also subsidizes the actions of competitors in the market (Khurana et al., 2006). Therefore, we conjecture that the marketing investment disclosure is more sensitive for companies in the phases of birth and growth (vs. other phases) because they experience greater sales growth, are trying to establish themselves in the market (Kabir et al., 2020) and seek to differentiate themselves from firms already established in their business segments.

Empirical evidence has shown that companies operating in competitive markets disclose less information (Mohamed & Schwienbacher, 2016) because laggard companies can outperform the results of leading companies that are in the birth and growth phases by capturing and applying the same strategies, taking advantage of learning from actions employed by leading companies (Cantrell & Dickinson, 2020). As marketing investments are strategic resources (Joshi & Hanssens, 2010) and as competitors target companies in the birth and the growth phases (Khurana et al., 2006), we expect companies in these phases to consider high investment strategies from marketing as a ‘secret’ and do not disclose them. Thus, we present the following hypothesis:

Hypothesis 3: The greater the marketing investment intensity, the lower (vs. higher) the level of marketing investment disclosure in companies that are in the birth and growth phases (vs. in the stages of maturity, turbulence, and decline).

The research sample consists of 89 Brazilian companies listed in Brasil Bolsa Balcão (B3), with 70 companies in the cyclical consumption sector and 19 companies in the non-cyclical consumption sector (Table 2). The sample cut is justified because marketing investments build greater equity for consumer goods companies, compared to companies in other sectors (Oh et al., 2016), and marketing investments can influence demand and consumption, impacting financial results (Sydney-Hilton & Vila-Lopez, 2019).

Figure 1
Theoretical framework.

Table 2
Research sample.

The financial data are from the financial statements for the fiscal year ended December 31, 2018, and were accessed through the Economatica platform and the B3 stock exchange website and subsequently unified. We obtained data on marketing investment disclosure from the financial reports, the explanatory notes, and the management report for the 2018 fiscal year, characterizing, therefore, a study with cross-sectional data.

The dependent variable of this study is the level of marketing investment disclosure. We built this variable using the content analysis technique that aims to identify the essence of textual communication (Bardin, 1977). We analyzed voluntary disclosures suggested by regulatory bodies by identifying 12 categories of voluntary marketing information (Appendix A). The information in categories 1, 2, and 3 deals with off-balance sheet marketing assets. Categories 4 and 5 are information on resources and budgets directed to marketing investments. Categories 6, 7, 8, and 9 are information related to the growth or decrease of marketing investments and the respective effects on the company’s results. Finally, categories 10, 11, and 12 contain information related to the perspective of future investments and the expected results for the current investments.

We performed data collection by reading the financial reports and manual annotation in an electronic spreadsheet by the authors. We define categorization a priori considering that we follow the suggestions of the regulatory bodies. The technique used was thematic analysis (categorical), which identifies nuclei of the meaning of communication. The categorization criterion applied is the logical-semantic method, whose scope follows parameters and logical definitions. We apply binary coding to the data to make it possible to measure the information levels of marketing investments, assigning code 1 when the company performs the disclosure of information and code 0 for the absence of information (dummy). This binary coding allowed to measure the level of marketing investment disclosure in different perspectives (for example, marketing assets, marketing investments, financial and economic effects of marketing investments, and future perspectives) and to make inferences and interpretations considering subcategories, such as the types of information (qualitative or quantitative). The identification of the different perspectives of the information allowed subdividing the dependent variable into six distinct variables, generating six study models (Table 3).

Table 3
Models for each dependent variable.

Note. * There is no proposed model for the DivRFE variable because we did not find disclosure in this category in any company in the sample.

The predictive variables of the study are the marketing investment intensity and the life cycle of the firm. In the international literature, the marketing investment intensity is an index measured through a proxy that uses sales, general, and administrative expenses, deducted from R&D expenses, weighting by total assets (Luo, 2008; Mizik, 2010). The higher the index of the marketing investment intensity, the greater the volume of the budget dedicated to the marketing department, indicating whether the firm’s investment strategy has a strong or weak link with marketing actions (Bae et al., 2017).

Brazilian accounting standards do not require specific disclosure of annual R&D expenditures and most Brazilian companies exercise their right not to disclose this information. Although this information exists in a few companies in the sample, to standardize the methodological procedures, we chose not to deduct the expenses with R&D. This limitation justifies the operationalization of the proxy for the marketing investment intensity in this study, carried out by weighting selling, general, and administrative expenses for the period by total assets.

To identify the life cycle phases, we used the signals from operating cash flows (FCO), financing cash flows (FCF), and investment cash flows (FCI). Cash flows make it possible to differentiate organizational life cycles because they capture differences in firms’ profitability, growth, and risk (Cantrell & Dickinson, 2020). Based on the methodology suggested by Dickinson (2011), the different stages of the life cycle are: birth, if FCO<0, FCI<0, and FCF˃0; growth, if FCO˃0, FCI<0, and FCF˃0; maturity, if FCO˃0, FCI<0, and FCF<0; decline, if FCO<0, FCI˃0, and FCF≤ or ≥0; and the other companies were classified in the turbulence phase.

We aggregated the stages of birth with that of growth (initial stages) and the stages of turbulence with the stage of decline (final stages) so that, together with the stage of maturity, we build a variable with three categories of the life cycle. The previous literature used this procedure (Habib & Hassan, 2019; Mikosz et al., 2019). The reason for the aggregation is that the uncertainty generated by the information asymmetry of the first two phases is different from the fundamentals of the uncertainty of the last two stages (Habib & Hassan, 2019). The phases of birth and growth share the condition of dependence on foreign capital and high indebtedness to take advantage of business and growth opportunities (Kabir et al., 2020). The uncertainty of the turbulence and decline phases is generated especially by the volatility in operating results and present cash flows, undermining growth opportunities and decreasing the capacity to recognize the organization’s continuity premise (Costa et al., 2017; Krishnan et al., 2021). For additional tests to check the results, we performed new analyses of the effects of the life cycle, also considering the five phases of the life cycle separately.

The estimation model contains covariables to control the effects that other elements generate on voluntary disclosure decisions. These covariables are: (a) corporate governance segment, considering that transparency is one of the requirements for a company to be listed in the highest segments of the levels of governance; (b) industry, segregating cyclical and non-cyclical consumption companies because they are exposed to different risks due to the influences of the economic expansion and retraction cycles; (c) auditing, due to the fact that the Big Four companies have more independence regarding voluntary disclosure recommendations compared to smaller audit companies; (d) ROE, representing the measure of profitability whose variability can arouse different interests of investors for information; (e) institutional control, considering that institutional investors can access privileged information or have greater ability to interpret the information; (f) liquidity, which signals to the market the management of short-term obligations; (g) solvency, which signals to the market the management of long-term obligations; (h); size, considering that large companies have a greater capacity to bear the costs of voluntary disclosure; (i) age, given that companies that have been publicly traded for longer have had more opportunities to define the content of the information disclosed; (j) market-to-book, because of the effect of the company’s market value on investors’ curiosity; and (k) sales growth, because of the effects of monitoring by competing companies. All variables went through the winsorization procedure at the 2.5% level to avoid problems with outliers (Mizik, 2010). Table 4 shows the operationalization and the source of data for the variables used in this work.

Table 4
Operationalization of variables.

Hypotheses 1 and 2 of the theoretical model were tested using Equation 1, and Hypothesis 3 was tested using Equation 2:

Equation 1 shows the direct relationship between the marketing investment intensity (MKTINV_i ) and the firm’s life cycle (LIFE_CICLE_i ) at the level of marketing investment disclosure (MKTDISC_i ). Equation 2 tests the effect of the predictor variable (MKTINV_i ) moderated by the life cycle effect (LIFE_CICLE_i ) on the disclosure level of marketing investments (MKTDISC_i ). Both equations represent multiple linear regression tests with robust standard errors, using each of the six dependent variables proposed in this study (shown in Table 3).

Studies have pointed out the phases of birth and growth as the stage in which the fear of mimicry of competition may be strongest (Habib & Hassan, 2019), driving the retention of information more strongly (Dye, 2001) when there is a high level of strategic investments (Bakarich et al., 2019). Therefore, we chose to perform the hypothesis test considering the five phases of the life cycle, with the growth phase being the reference group in the regression model (intercept). Table 8 shows the results, segregated in Panel A, for direct relationships between the marketing investment intensity and the life cycle with the level of marketing investment disclosure, and Panel B, for relationships moderated by the five phases of the life cycle.

Table 8
Determinants of the level of marketing investment disclosure considering the five life cycle phases individually.

Note. *** sig. < 0.001, ** sig. < 0.01, * sig. < 0.05, ⸸ sig. < 0.1. Robust regression.

The results show a positive relationship between marketing investment intensity and the level of marketing investment disclosure in all models, except Model 4. Regarding the effects of the life cycle, we found that the level of marketing investment disclosure is lower in companies in the maturity and turbulence phases compared to the growth phase. Such results are similar to the analyses presented in Panel A of Table 7, supporting the hypothesis.

The effects of marketing intensity on the level of marketing investment disclosure, moderated by the stages of the life cycle, are in Panel B of Table 8. The results indicate that the greater the marketing investment intensity, the more firms that are in the phases of maturity, turbulence, and decline disseminate marketing information, once again supporting the Hypothesis 3.

A limitation of this study refers to the analysis of the life cycle phases using a multi-categorical variable that requires using a reference group in the regression model, making it difficult to compare the effects between the other life cycle phases. Future studies can overcome this limitation using subsamples for further analysis. Second, the present study is limited in terms of the sample size, as it considers only Brazilian companies listed in B3 belonging to sectors related to consumption. Such a limitation can be removed by future studies by expanding analyses with data from companies in other countries (e.g., Nasdaq, Nikkei, DowJones). Third, the absence of exclusive data on marketing expenses forced us to use a proxy based on administrative, general, and sales expenses, as already practiced in international literature. In addition to this limitation, the measurement of the marketing investment intensity in this study has undergone adaptation, considering the methodology used in international studies, as it is not common for Brazilian companies to disclose the amount of R&D expenditures. Finally, there is a limitation regarding the collection of data on voluntary disclosure of information. This collection, because it is manual and depends on the interpretation of the context of the information, made the extension of such activity unfeasible to form a data panel, with information within a timeframe. We suggest that future research should investigate the relationship between the marketing investment disclosure and the market value of firms and the performance of shares, in the short and long term, controlling the effects of the level of marketing investment and the phases of the marketing life cycle.

* Corresponding Author