Advertising is commonly thought to lead to improved firm performance, but literature has been divided on the effect of advertising on revenue and profitability so far. Some studies confirm a link between these three variables, but others do not. Studies that negate a relationship between advertising expenditure and firm performance are of interest, particularly because advertising can be very expensive for a company. Thus, this study sought to examine the relationship between advertising expenditure, revenue, and net profit of 57 corporations listed in the Philippine Stock Exchange (PSE) for 10 years, from 2008 to 2017. Using 2SLS regression analysis on panel data, it was found that advertising positively and significantly affects firm performance through revenue but not net profit. The results imply that companies may use advertising as a powerful tool to boost sales and market share; however, it does not guarantee profitability. Other cost management strategies are needed to ensure that high revenue resulting from strong advertising activity translates to high profitability. Nevertheless, a strong association between advertising expenditure and revenue indicates that management must prioritize setting an annual advertising budget.
Keywords: advertising expenditure, revenue, profit, 2SLS, panel dataAcculturative Products Uniqueness Antecedence for Successful Marketing Performance
Abdullahi, D. (2014). Assessment of advertising on the sales revenue and profitability of Nigerian bBottling cCompany Plc. European Journal of Business and Management, 6(37), 144–154.
Acar, M., & Temiz, H. (2017). Advertising effectiveness on financial performance of banking sector: Turkey case. International Journal of Bank Marketing, 35(4), 649–-661.
Agostini, L., Filippini, R., & Nosella, A. (2015). Brand-building efforts and their association with SME sales performance. Journal of Small Business Management, 53, 161–173. https://doi.org/10.1111/jsbm.12185
Ali Shah, S. Z., & Akbar, S. (2008). Value relevance of advertising expenditure: A review of the literature. International Journal of Management Reviews, 10(4), 301–325. https://doi.org/10.1111/j.1468-2370.2007.00228.x
Assaf, G., Josiassen, A., Ahn, J., & Mattila, A. (2017). Advertising spending, firm performance, and the moderating impact of CSR. Tourism Economics, 23(7), 1484–-1495.
Assaf, A. G., Josiassen, A., Mattila, A. S., & Cvelbar, L. K. (2015). Does advertising spending improve sales performance? International Journal of Hospitality Management, 48, 161–166. https://doi.org/10.1016/j.ijhm.2015.04.014
Ayanian, R. (1975). Advertising and rate of return. Journal of Law and Economics, 56, 349–363.
Baidya, M., Maity, B., & Ghose, K. (2017). The economics of brand and marketing activities. DLSU Business and Economics Review, 27(1), 65–-174.
Chung, K. Y., Derdenger, T. P., & Srinivasan, K. (2013). Economic value of celebrity endorsements: Tiger Woods’ impact on sales of Nike golf balls. Marketing Science, 32(2), 271–293. https://doi.org/10.1287/mksc.1120.0760
Comanor, W. S., & Wilson, T. A. (1967). Advertising, market structure and performance. Review of Economics and Statistics, 69, 423–440.
Dutka, S., & Colley, R. (1995). Defining advertising goals for measured advertising results (2nd ed.). NTC Contemporary.
Elliott, C. (2001). A cointegration analysis of advertising and sales data. Review of Industrial Organization, 18, 417–426.
Erickson, G., & Jacobson, R. (1992). Gaining comparative advantage through discretionary expenditures: The returns to R&D and advertising. Management Science, 38, 1264–1279.
Hula, D. G. (1988). Advertising, new product profit expectations and firm’s R&D investment decisions. Applied Economics, 20, 125–142.
Ilaboya, O., & Ohiokha, I. (2016). Firm age, size and profitability dynamics: A test of learning by doing and structural inertia hypotheses. Business and Management Research, 5(1).
Joshi, A., & Hanssens, D. (2009). The direct and indirect effects of advertising spending on firm value. Journal of Marketing, x(x), xx–xx. https://doi.org/10.1016/j.physbeh.2011.03.020
Kim, J., Jun, J., Tang, L., & Zheng, T. (2018). The behavioral and intermediate effects of advertising on firm performance: An empirical investigation of the restaurant industry. Journal of Hospitality & Tourism Research, 42(2), 319–-337.
Kotler, P., & Armstrong, G. (2018). Principles of marketing. Pearson Education Limited.
Laksmidewi, D., & Soelasih, Y. (2019). Anthropomorphic green advertising: How to enhance consumers` environmental concern. DLSU Business and Economics Review, 29(1), 72–-84.
Majumdar, S. K. (1997). The impact of size and age on firm-level performance: Some evidence from India. Review of Industrial Organization, 12, 231–241.
McAlister, L., Srinivasan, R., Jindal, N., & Cannella, A. A. (2016). Advertising effectiveness: The moderating effect of firm strategy. Journal of Marketing Research, 53, 207–224. https://doi.org/10.1509/jmr.13.0285
Megna, P., & Mueller, D. C. (1991). Profit rates and intangible capital. Review of Economics and Statistics, 73, 633–642.
Notta, O., & Oustapassidis, K. (2001). Profitability and media advertising in Greek food manufacturing industries. Review of Industrial Organization, 18, 115–126.
Olawale, L. S., Ilo, B. M., & Lawal, F. K. (2017). The effect of firm size on performance of firms in Nigeria. The IEB International Journal of Finance, 15, 2–21.
Paton, D., & Vaughan Williams, L. (1999). Advertising and firm performance: Some new evidence from UK firms. Economic Issues, 4, 89–105.
Picconi, M. J. (1977). A reconsideration of the recognition of advertising assets on the financial statements. Journal of Accounting Research, 15, 317–326.
Pitelis, C. N. (1991). The effects of advertising and investment on aggregate profits. Scottish Journal of Political Economy, 38, 32–40.
Reekie, W. D., & Bhoyrub, P. (1981). Profitability and intangible assets: Another look at advertising and entry barriers. Applied Economics, 13, 99–107.
Rufino, C. (2008). Lagged effect of TV advertising on sales of an intermittently advertised product. DLSU Business and Economics Review, 18(1), 1–-12.
Sharpe, S., & Hanson, N. (2017). Advertising expenditures, negative corporate social performance, and firm performance: Does advertising orientation matter? An abstract. Developments in Marketing Science: Proceedings of the Academy of Marketing Science, 45.
Sherman, R., & Tollison, R. (1971). Advertising and profitability. Review of Economics and Statistics, 53, 397–407.
Sugiyarti, G., & Ardyan, E. (2017). Market sensing capability and product innovation advantages in emerging markets: The case of market entry quality and marketing performance of batik industry in Indonesia. DLSU Business and Economics Review, 27(1), 175–-189.
Tackx, K., Rothenberger, S., & Verdin, P. (2016). Is advertising for losers? An empirical study from a value creation and value capturing perspective. European Management Journal, x(x), 1–9. https://doi.org/10.1016/j.emj.2016.07.008
Thach, L., Lease, T., & Barton, M. (2016). Exploring the impact of social media practices on wine sales in US wineries. Journal of Direct, Data and Digital Marketing Practice, x, 1–12. https://doi.org/10.1057/dddmp.2016.5
Xu, J., Liu, F., & Chen, Y. (2019). R&D, advertising and firms` financial performance in South Korea: Does firm size matter?. Sustainability, 11(14), 3764.
Yiannaka, A., Giannakas, K., & Tran, K. C. (2002). Medium message and advertising effectiveness in the Greek processed meats industry. Applied Economics, 14, 1757–1763.
Zhang, W., Li, S., Zhang, D., & Hou, W. (2014). On the impact of advertising initiatives in supply chains. European Journal of Operational Research, 234(1), 99–107. https://doi.org/10.1016/j.ejor.2013.10.069.