The Contribution of Changes in Advertising Expenditures to Earnings and Market Values

Graham, Roger C.; Frankenberger, Kristina D.

doi:10.1016/s0148-2963(99)00028-4

Cited by 87 publications

(66 citation statements)

References 15 publications

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“…This concerns especially with advertising because data on advertising expenditures from the Compustat PC-Plus database usually include expenditures on other marketing communications like consumer promotions. Thus, it is not the most precise advertising data if the exact data on advertising expenditures were required (Graham & Frankenberger, 2000;Mizik & Jacobson, 2003).…”

Section: Limitationsmentioning

confidence: 99%

Advertising vs. R&D: Relative effectiveness on brand equity

Jeong

2015

SAJBM

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This study examines whether advertising can contribute directly to brand equity and, if it can, determines how much value advertising can deliver to brands and firms using the secondary data from various sources. The findings show that advertising can not only work to improve market performance measures but also to develop and maintain brand equity. R&D is also found to positively affect brand equity. With regard to the relative effectiveness of advertising and R&D, R&D is more effective than advertising in contributing to brand equity when measuring absolute effects of expenditures. When measuring simple changes in brand equity, however, changes in advertising are more effective than changes in R&D.

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Section: Limitationsmentioning

confidence: 99%

Advertising vs. R&D: Relative effectiveness on brand equity

Jeong

2015

SAJBM

View full text Add to dashboard Cite

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“…In a given period of time, advertising spending can be zero but advertising related intangible value may not be. Upon recognizing the potential contribution of advertising expenditures to firm intangible assets and driven by the potential to capitalize it on the balance sheet, some researchers studied the asset-like characteristics (Graham and Frankenberger 2000;Hirschey and Weygandt 1985). Since the accounting treatment of assets is to amortize the asset values over their useful lives, these models follow the assumption that advertising effects decay over years.…”

Section: The Marketing Approachmentioning

confidence: 99%

“…Since the accounting treatment of assets is to amortize the asset values over their useful lives, these models follow the assumption that advertising effects decay over years. Multiperiod regression analysis suggests that the effect of advertising expenditures has a lifetime of 1-5 years (Graham and Frankenberger 2000;Hirschey and Weygandt 1985).…”

Section: The Marketing Approachmentioning

confidence: 99%

“…Theoretically, researchers need to first consider whether a decaying effect actually exists rather than assume its existence in modeling (e.g., Equations 4, 7, and 8, in Graham and Frankenberger 2000). Hirschey and Weygandt (1985, p331) imposed an even stronger assumption that "... the economic amortization of advertising ... is at a constant rate" to build their model, which is indeed a key question to be answered.…”

Section: The Marketing Approachmentioning

confidence: 99%

“…Most studies tested the advertising-firm value relationship by studying single-period (e.g., yearly) effects. Some, with the motivation to capitalize advertising expenditures, analyzed the amortization feature by considering decaying effects of advertising expenditures on firm value and suggested that advertising effects wear out in 3-5 years (Graham and Frankenberger 2000;Hirschey and Weygandt 1985). After conducting a meta-analysis of research in this area, Conchar et al (2005) suggested that future work should consider theoretical foundations for (rather than the empirical existence of) the advertisingmarket value relationship and should view the effect of advertising spending on shareholder wealth from a marketing, rather than a financial, perspective.…”

Section: Introductionmentioning

confidence: 99%

See 2 more Smart Citations

Does advertising create sustained firm value? The capitalization of brand intangible

Wang

Zhang

Ouyang

2008

J. of the Acad. Mark. Sci.

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This research inquires into the nature and degree of advertising effects on firm intangible values. Based on marketing research on consumer based brand equity, this paper challenges the prevailing decaying assumption employed in the accounting/finance disciplines to model the advertising-firm value relationship. Meanwhile, using financial data and methods, we provide new measures for the marketing discipline to evaluate the effectiveness of advertising to create brand intangible. Results indicate that advertising effects on firm intangible assets are sustainable and accumulative and support the asset/investment-like characteristics of advertising expenditures. The research provides an empirical method to assess long-term advertising performance and suggests firms' varying effectiveness in creating brand equity through advertising. This study is the first to report negative persistence effects of advertising to firm intangible values.

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Economic policy uncertainty nexus with the value relevance of advertising: Evidence from an emerging market

2023

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This paper aims to document the effect of economic policy uncertainty on the value of advertising expenditures within the context of an emerging market. The paper shows that the value of advertising expenditures is an increasing function of economic policy uncertainty. The impact of advertising on firm performance is more pronounced during the periods characterized by higher economic policy uncertainty. We argue that, during uncertain times, the financial information loses its relevance. Therefore, during these periods, non‐financial traits, such as brand image, customer equity, relationship capital, and familiarity that characterizes firms with high advertising become more important. The findings hold in various sub‐samples and across various proxies of advertising activity. The findings also hold under alternate estimation procedures (pooled OLS regression, panel data with fixed effects and instrument variable regression). More importantly, this paper also shows that, relative to other agency reducing mechanisms (such as analyst coverage, asset utilization ratio, expense ratio and dividend payments), advertising is more valuable during periods with high economic policy uncertainty.

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The Contribution of Changes in Advertising Expenditures to Earnings and Market Values

Cited by 87 publications

References 15 publications

Advertising vs. R&D: Relative effectiveness on brand equity

Advertising vs. R&D: Relative effectiveness on brand equity

Does advertising create sustained firm value? The capitalization of brand intangible

Economic policy uncertainty nexus with the value relevance of advertising: Evidence from an emerging market

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