Value Relevance of Advertising Expenditure: A Review of the Literature

25 Pages Posted: 15 Nov 2008

See all articles by Syed Zulfiqar Ali Shah

Syed Zulfiqar Ali Shah

University of Warwick - Warwick Business School

Saeed Akbar

University of Liverpool - Accounting and Finance Division

Abstract

This paper presents a review of the relevant empirical literature on advertising value relevance. The current dominant accounting practice is to treat advertising as a current period expense. There has been growing evidence, however, to suggest that advertising should be viewed as an investment in long-term brand equity. While the primary focus is on the valuation studies of advertising expenditure, the paper also provides an overview of various other studies that relate advertising to profitability or sales of the firm or industry to investigate the effects of advertising expenditure. As a consequence, it is emphasized that there has been a recent shift to the use of valuation models in exploring the nature of advertising expenditure. Since market value captures both the current and future profitability effects of advertising, valuation models are often seen as a better alternative in exploring the intangible nature of advertising expenditure. It is found that the bulk of evidence on advertising value relevance comes from the US, where there has historically been greater disclosure of advertising expenditure. There appears to be little evidence on this matter in the UK, however. This may largely be attributed to the lack of advertising data availability in the UK.

Suggested Citation

Ali Shah, Syed Zulfiqar and Akbar, Saeed, Value Relevance of Advertising Expenditure: A Review of the Literature. International Journal of Management Reviews, Vol. 10, Issue 4, pp. 301-325, December 2008, Available at SSRN: https://ssrn.com/abstract=1301203 or http://dx.doi.org/10.1111/j.1468-2370.2007.00228.x

Syed Zulfiqar Ali Shah (Contact Author)

University of Warwick - Warwick Business School ( email )

Coventry CV4 7AL
United Kingdom

Saeed Akbar

University of Liverpool - Accounting and Finance Division ( email )

United Kingdom

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