Prior financial studies have suggested that financing capability is also critical because it
enables the firm to raise enough external funds in order to maintain a healthy capital structure for business development and firm future success. Theoretically, a firm with higher financing capability can more efficiently fund its investment projects and more effectively allocates capital to projects with greater net present value.
Here we refer financing capability to firm-idiosyncratic, optimally weighted efficiency in transforming financing resources (firms’ stock of external debt in the capital structure) into desirable financial outcome (cash flows and cash flow growth).
Marketing capability is expected to have a relatively larger impact in magnitude than financing capability on analysts’ stock recommendations for several reasons. First, although both capabilities are intangible according to RBV and MAF, financing capability is easier for analysts to codify due to the regulations requiring firms to fully disclose accounting and finance information to SEC and other agencies
In contrast, marketing capability is more difficult to codify and transmit because market knowledge about customer needs is tacit,firm-specific, and developed over time through experiential learning in a socially complex nature.
Also, because market-sensing and customer-linking skills are distributed across organizational departments and privately held by individual employees, market knowledge tends to have a higher degree of imperfect mobility and imperfect imitability.
In fact, supporting the relatively stronger impact of marketing capability than R&D and operations, marketing capability is likely to be immune to competitive imitation and acquisition because of the distributed, tacit, and private nature of the underlying knowledge.
Furthermore, prior finance literature suggests that there are mixed and weak results on the influence of corporate debt financing and capital structure on firm financial performance. Though benefiting the firm with capital support, financing with external debt may lead the firm to be more vulnerable to unexpected stress and wrongful guidance from debt holders according to the pecking order theory.
Therefore, on the basis of RBV, MAF, and prior finance literature, this study proposes that, on balance, compared to financing capability, marketing capability of a firm is more difficult for rivals to codify, copy, and transfer and more likely signals stronger firm prospects of future cash flows, thus leading to relatively larger impact on analysts’ stock recommendations for the firm.