Does Advertising Productivity Affect Organizational Performance? Impact of Market Conditions

Abstract

Advertising is crucial in influencing customers' perceptions and purchase intentions, and numerous studies have investigated whether advertising expenditure has any significant impact on financial performance. A thorough understanding remains elusive: while several studies document a positive impact, others report that advertising has either a negative or a statistically insignificant effect. Three flaws among existing studies are responsible for this problem: bundling advertising with other forms of marketing, the inadequacy of expenditure as a measure and a failure to consider contingencies. Deviating from earlier studies, we examine the effect of advertising productivity on firm performance rather than the impact of the absolute amount of advertising expenditure. Moreover, adopting a contingency approach, we evaluate how market conditions of market dynamism, market complexity and market munificence moderate the relationship between advertising productivity and organizational performance. Drawing a multi-industry sample from the USA, this study demonstrates that advertising productivity has a positive impact on capital market-based performance measures, conditional on market conditions. We reveal new insights into when, why and to what extent advertising contributes (or not) to organizations' financial performance.

Effect of advertising spending on operating and market performance of banks: empirical evidence from Bangladesh

“…As shown in Table 3, the previous year's performance of banks in each model has a positive and significant effect on the current year's performance. These findings indicate that previous year profitability persists into the current year, which is in agreement with the existing research (such as Wintoki et al , 2012; Tuan and Tuan, 2016; and Anh and Anh, 2020; Rahman et al , 2020a, b) and suggest the analysis of advertising and bank performance should be conducted in a dynamic structure. We have used the one-year lag performance as an independent variable to capture the past effect on the present and to control the potential unobservable historical factors' effect on current year advertising expenditure and bank performance.…”

“…Therefore, our research sample consists of 30 publicly listed banks in DSE. Following Rahman et al (2020a, b), Kosmidou and Zopounidis (2008), Acar and Temiz (2017), Mullineaux and Pyles (2010) and Hirschey and Weygandt (1985), this study uses the log of operating profit (OP), return on assets (ROA) and return on equity (ROE) as the proxy of accounting-based financial performance, while Tobin's Q has been utilized as a market-based performance indicator. Tobin's Q is measured by the proportion of the market value of a bank to the asset's replacement costs.…”

“…Shah et al (2009) document a similar line of evidence that advertisement spending contributes positively to the market value of nonfinancial UK firms. Based on a multi-industry sample from the United States, Rahman et al (2020a, b) argue that advertising productivity is positively associated with capital (a market-based performance indicator) that depends on market conditions.…”

How Does Selling Capability Impact Firm Value? The Moderating Roles of Relative Strategic Emphasis, Market Volatility, and Technological Volatility

“…Numerous studies have emphasized the importance of how a firm's external environment affects its capabilities (Feng et al, 2017;Rahman et al, 2021). Dynamic capability theory suggests that firms need to combine and reconfigure their intangible and tangible assets in novel ways to neutralize threats and exploit emergent opportunities in an ever-changing marketplace (Teece, 2007).…”

“…Because a firm's value in the current period can be associated with previous periods' value (Marino, 2015;Rahman et al, 2021), this study controlled for persistence in firm value by incorporating the lagged firm value (autoregressive model). Specifically, lagged firm values for the two periods were included based on two criteria.…”