Marketing and bankruptcy risk: the role of marketing capabilities

Research has demonstrated the role of marketing actions and assets in reducing bankruptcy risk. However, firms with strong marketing assets and robust marketing budgets also fall prey to bankruptcy. Therefore, the sheer magnitude of marketing expenses and mere possession of marketing assets do not fully account for the variation in bankruptcy risk. In this paper, we propose that a firm's marketing capability, besides its marketing assets, plays an essential role in determining its bankruptcy risk by affecting cash flow. We thereby identify conditions under which a firm's marketing assets reduce its bankruptcy risk. Using a large longitudinal dataset of U.S. firms, we show that a combination of capabilities and assets is required to reduce bankruptcy risk. We employ machine learning to analyze the effects of marketing capability on bankruptcy. Out-of-sample validation indicates that when marketing capability is included with standard financial predictors, it improves the performance of bankruptcy prediction models..