Abstract
PurposeThe purpose of the paper is to empirically explore the economic effect of advertising spending on the performance of banks on a sample consisting of all banks listed on the Dhaka Stock Exchange over the period spanning from 2011 to 2019.Design/methodology/approachA dynamic panel data autoregressive approach of two-step system generalized method of moments (2-SGMM) estimation technique has been adopted in this study to analyze the contemporary and carryover effect of advertising on the financial performance of banks.FindingsThe findings indicate that advertising expenditure boosts banks' accounting returns but not their market value. Furthermore, advertising has a negative carryover effect on the financial performance of banks and is statistically significant for operating profit and return on equity. This finding demonstrates that the economic benefits of advertising expenditure lapse entirely within the current period and ought to be treated as an expense since it does not bring any future return for the banks in Bangladesh. In addition, this paper also offers no critical contrast between the impact of advertising spending on the performance of both conventional and Islamic banks operating in Bangladesh.Originality/valueTo the best of the authors' knowledge, no study so far has looked into the effect of advertising on the profitability and the market value of the banks operating in Bangladesh, and this is the first study that explores this relationship.
Highlights
Advertising, a marketing tool, is critical for communicating the product availability, features, benefits and establishing a company’s brand (Peterson and Jeong, 2010)
3.2 Model specification Based on the variables as mentioned earlier, we have developed the following dynamic panel data generalized method of moments (GMM) model propounded by Arellano and Bond (1991) and Blundell and Bond (1998) to test the influence of advertising expenditure of banks on their financial performance
The current study finds that one-year lag advertising expenditure has a negative influence on the financial performance of banks, but it is statistically significant for operating profit and return on equity
Summary
Advertising, a marketing tool, is critical for communicating the product availability, features, benefits and establishing a company’s brand (Peterson and Jeong, 2010). It is used to influence the attitudes and perceptions of the customers (Wies et al, 2019). Advertising informs the customers about the new products and services and helps to stimulate the competition and demand in the market (Ali Shah and Akbar, 2008). According to Lou (2014), advertising works as a value relevant signal of future earnings, influencing the investors’. JEL Classification — G21, M37 © Md. Ibrahim Molla and Md. Kayes Bin Rahaman.
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