Financial Determinants of Sales Promotion Spending

Abstract

Sales promoting spending includes various forms of activities, most of them legal and some illegal. Sales promotion spending is a typical discretionary expenditure to improve earnings and firm values. This study investigates financial factors determining the relative magnitude of sale promotion spending in a broad sense including sales promotion expense as well as buyer entertainment expense and oversea market development expense.The results show that the higher the contemporary return on sales and the lower the prior return on sales are, the lower the sale promotion spending ratio on sales is. The higher the total asset turnover and the current ratio are, the lower the sale promotion spending ratio on sales is. The ratios of promotion and training expenses on sales are shown to move in the same direction.The higher the contemporary sales are, the lower the promotion expenditure is. The higher the debt ratio is, the higher the ratio of promotion spending on assets is. The positive effect of operating cash flows on the promotion spending relative to total assets is found.