Effect of Advertising Expenditure on Firm Performance of Filipino Corporations: A Two-Stage Least Squares Analysis

Authors

Safa D. Manala-O, De La Salle University and Mindanao State University-Iligan Institute of Technology, PhilippinesFollow
Ringgold P. Atienza, Misamis University / De La Salle University, Manila, Philippines

JEL Classification System

C33

Abstract

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.

Recommended Citation

Manala-O, Safa D. and Atienza, Ringgold P. (2020) "Effect of Advertising Expenditure on Firm Performance of Filipino Corporations: A Two-Stage Least Squares Analysis," DLSU Business & Economics Review: Vol. 30: No. 1, Article 8.
DOI: https://doi.org/10.59588/2243-786X.1120
Available at: https://animorepository.dlsu.edu.ph/ber/vol30/iss1/8