A Structural Equation Model of the Relationship between Advertising, Profitability and Size

Abstract

According to conventional theories, advertising intensity promotes product differentiation, leading to higher barriers to entry and higher profits.Previous research has attempted to test the relationship between advertising and profitability using historical and experimental approaches. However, these relationships have not been examined over a period of time; hence no causality can be imputed to the variables of interest. Based on COMPUSTAT data for 131 fmns in the consumer goods industries, this study examined the relationships between advertising, profitability and sales over a three year period using LISREL.

Sectoral and Firm-Level Determinants of Profitability: A Multilevel Approach

“…According to Huta (2014), the most commonly used alternatives are Structural Equation Modeling (SEM) and Generalized Linear Model (GLM) based on repeat-measured variables, for empirical examples see, e.g. Choi & Lim (2017), Sivasubramaniam & Kara (2015), Hair et al (2014), Mavrogiannis et al (2008), Wisner (2003.…”

Is the price-cost margin affected by the market concentration? Evidence from the Czech food and beverages industry

“…Assessing the impact of market concentration and other structural variables such as advertising intensity, capital requirements, economies of scale in production, firm size, industry growth or measures of risk has been the subject of many contributions in the literature (e.g. Sivasubramaniam & Kara, 2015;Bothwell et al, 1984;Setiawan et al, 2012;Collins & Preston, 1966;Dickson, 2005). However, research and evidence for the agribusiness sector is yet sparse (some notable exceptions are Schumacher & Boland, 2005;Weiss & Wittkopp, 2005;Höhler & Kühl, 2014;Dorsey & Boland, 2009;Janda et al, 2013;Čechura & Hockmann, 2011) since past research has focused on entire manufacturing sectors or over broad economic sectors.…”

Drivers of ROE and ROA in the Czech Food Processing Industry in the Context of Market Concentration

“…The assessment of the impact of industry factors, particularly the market concentration, as well as other structural variables such as the intensity of advertising and promotion, capital requirements, import competition, size of firms, industry growth or risk level, has been the subject of a number of research studies (e.g. Sivasubramaniam and Kara, 2015;Bothwell et al, 1984;Setiawan et al, 2012;Collins and Preston, 1966;Dickson, 2005). The analyses are based on economic literature usually using the econometric approach to investigate the relationship between market structure and performance.…”