IDEAS home Printed from https://ideas.repec.org/a/sae/globus/v16y2015i4p609-622.html
   My bibliography  Save this article

An Empirical Investigation on the Impact of Marketing Communication Expenditure on Firms’ Profitability: Evidence from India

Author

Listed:
  • Neelotpaul Banerjee
  • Somroop Siddhanta

Abstract

This study attempts to put forth the causal relationship between integrated marketing communications (IMC) and profit before depreciation interest and tax (PBDIT) of firms operating in the personal care industry, in India, as categorized by the Capitaline database, while also trying to study their long-term and short-term relationships so as to understand the impact of one variable on another. The choice of the industry is due to the fact that this is an industry where a substantial amount of money is spent on advertising and sales promotion. The results reveal there is unidirectional causality running from IMC to PBDIT and there is a long-term co-integrating relationship between the two. The vector error correction, impulse response function and forecast error variance decomposition results reinforce that marketing communications take time in building the image of a brand in the mind of the prospects and hence the impact of IMC on profits comes with a time lag. This study will help brand managers to strategize budget allocation decisions by informing them the duration of the return on such investments.

Suggested Citation

  • Neelotpaul Banerjee & Somroop Siddhanta, 2015. "An Empirical Investigation on the Impact of Marketing Communication Expenditure on Firms’ Profitability: Evidence from India," Global Business Review, International Management Institute, vol. 16(4), pages 609-622, August.
    • Handle: RePEc:sae:globus:v:16:y:2015:i:4:p:609-622
    DOI: 10.1177/0972150915581105
    as

    Download full text from publisher

    File URL: https://journals.sagepub.com/doi/10.1177/0972150915581105
    Download Restriction: no
    File URL: https://libkey.io/10.1177/0972150915581105?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Peles, Yoram, 1971. "Rates of Amortization of Advertising Expenditures," Journal of Political Economy, University of Chicago Press, vol. 79(5), pages 1032-1058, Sept.-Oct.
    2. Ayanian, Robert, 1983. "The Advertising Capital Controversy," The Journal of Business, University of Chicago Press, vol. 56(3), pages 349-364, July.
    3. Engle, Robert & Granger, Clive, 2015. "Co-integration and error correction: Representation, estimation, and testing," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 39(3), pages 106-135.
    4. Lambin, Jean-Jacques, 1969. "Measuring the Profitability of Advertising: An Empirical Study," Journal of Industrial Economics, Wiley Blackwell, vol. 17(2), pages 86-103, April.
    5. Amalia Yiannaka & Konstantinos Giannakas & Kien Tran, 2002. "Medium, message and advertising effectiveness in the Greek processed meats industry," Applied Economics, Taylor & Francis Journals, vol. 34(14), pages 1757-1763.
    6. Horváth, Csilla & Kornelis, Marcel & Leeflang, Peter S.H., 2002. "What marketing scholars should know about time series analysis : time series applications in marketing," Research Report 02F17, University of Groningen, Research Institute SOM (Systems, Organisations and Management).
    7. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
    8. Ourania Notta & Kostas Oustapassidis, 2001. "Profitability and Media Advertising in Greek Food Manufacturing Industries," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 18(1), pages 115-126, February.
    9. Pitelis, Christos N, 1991. "The Effects of Advertising (and) Investment on Aggregate Profits," Scottish Journal of Political Economy, Scottish Economic Society, vol. 38(1), pages 32-40, February.
    10. Trina Larsen Andras & Srini S. Srinivasan, 2003. "Advertising Intensity and R&D Intensity: Differences across Industries and Their Impact on Firm's Performance," International Journal of Business and Economics, School of Management Development, Feng Chia University, Taichung, Taiwan, vol. 2(2), pages 167-176, August.
    11. Frank M. Bass & Robert P. Leone, 1983. "Temporal Aggregation, the Data Interval Bias, and Empirical Estimation of Bimonthly Relations from Annual Data," Management Science, INFORMS, vol. 29(1), pages 1-11, January.
    12. Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January.
    13. repec:dgr:rugsom:02f17 is not listed on IDEAS
    14. Perron, Pierre, 1989. "The Great Crash, the Oil Price Shock, and the Unit Root Hypothesis," Econometrica, Econometric Society, vol. 57(6), pages 1361-1401, November.
    15. Caroline Elliott, 2001. "A Cointegration Analysis of Advertising and Sales Data," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 18(4), pages 417-426, June.
    16. Lev, Baruch & Sougiannis, Theodore, 1996. "The capitalization, amortization, and value-relevance of R&D," Journal of Accounting and Economics, Elsevier, vol. 21(1), pages 107-138, February.
    17. Kwoka, John E, Jr, 1993. "The Sales and Competitive Effects of Styling and Advertising Practices in the U.S. Auto Industry," The Review of Economics and Statistics, MIT Press, vol. 75(4), pages 649-656, November.
    18. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
    19. Vernon, John M & Nourse, Robert E M, 1973. "Profit Rates and Market Structure of Advertising Intensive Firms," Journal of Industrial Economics, Wiley Blackwell, vol. 22(1), pages 1-20, September.
    20. W. Duncan Reekie, 1981. "The Economics of Advertising," Palgrave Macmillan Books, Palgrave Macmillan, number 978-1-349-04877-9.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Papież, Monika & Śmiech, Sławomir, 2015. "Dynamic steam coal market integration: Evidence from rolling cointegration analysis," Energy Economics, Elsevier, vol. 51(C), pages 510-520.
    2. Esposti, Roberto, 2002. "Public agricultural R&D design and technological spill-ins: A dynamic model," Research Policy, Elsevier, vol. 31(5), pages 693-717, July.
    3. Kerry Patterson & Michael A. Thornton, 2013. "A review of econometric concepts and methods for empirical macroeconomics," Chapters, in: Nigar Hashimzade & Michael A. Thornton (ed.), Handbook of Research Methods and Applications in Empirical Macroeconomics, chapter 2, pages 4-42, Edward Elgar Publishing.
    4. Charles G. Renfro, 2009. "The Practice of Econometric Theory," Advanced Studies in Theoretical and Applied Econometrics, Springer, number 978-3-540-75571-5, July-Dece.
    5. Andrade, Isabel, 1992. "The relationship between inflation and relative price variability: A multivariate approach," Discussion Paper Series In Economics And Econometrics 9203, Economics Division, School of Social Sciences, University of Southampton.
    6. Kyriakos Emmanouilidis & Christos Karpetis, 2020. "The Defense–Growth Nexus: A Review of Time Series Methods and Empirical Results," Defence and Peace Economics, Taylor & Francis Journals, vol. 31(1), pages 86-104, January.
    7. Nieh, Chien-Chung & Yau, Hwey-Yun, 2004. "Time series analysis for the interest rates relationships among China, Hong Kong, and Taiwan money markets," Journal of Asian Economics, Elsevier, vol. 15(1), pages 171-188, February.
    8. Makin, Anthony J. & Ratnasiri, Shyama, 2015. "Competitiveness and government expenditure: The Australian example," Economic Modelling, Elsevier, vol. 49(C), pages 154-161.
    9. Leiva, Benjamin & Liu, Zhongyuan, 2019. "Energy and economic growth in the USA two decades later: Replication and reanalysis," Energy Economics, Elsevier, vol. 82(C), pages 89-99.
    10. Xu, Haifeng & Hamori, Shigeyuki, 2012. "Dynamic linkages of stock prices between the BRICs and the United States: Effects of the 2008–09 financial crisis," Journal of Asian Economics, Elsevier, vol. 23(4), pages 344-352.
    11. M. T. Alguacil & V. Orts, 2003. "Inward Foreign Direct Investment and Imports in Spain," International Economic Journal, Taylor & Francis Journals, vol. 17(3), pages 19-38.
    12. Ansgar Belke & Robert Czudaj, 2010. "Is Euro Area Money Demand (Still) Stable? Cointegrated VAR Versus Single Equation Techniques," Applied Economics Quarterly (formerly: Konjunkturpolitik), Duncker & Humblot, Berlin, vol. 56(4), pages 285-315.
    13. Derek Bond & Michael J. Harrison & Edward J. O'Brien, 2005. "Testing for Long Memory and Nonlinear Time Series: A Demand for Money Study," Trinity Economics Papers tep20021, Trinity College Dublin, Department of Economics.
    14. Ericsson, Neil R & Hendry, David F & Mizon, Grayham E, 1998. "Exogeneity, Cointegration, and Economic Policy Analysis," Journal of Business & Economic Statistics, American Statistical Association, vol. 16(4), pages 370-387, October.
    15. Perles-Ribes, José Francisco & Ramón-Rodríguez, Ana Belén & Rubia, Antonio & Moreno-Izquierdo, Luis, 2017. "Is the tourism-led growth hypothesis valid after the global economic and financial crisis? The case of Spain 1957–2014," Tourism Management, Elsevier, vol. 61(C), pages 96-109.
    16. Eleni Constantinou & Avo Kazandjian & Georgios P. Kouretas & Vera Tahmazian, 2008. "Common Stochastic Trends Among The Cyprus Stock Exchange And The Ase, Lse And Nyse," Bulletin of Economic Research, Wiley Blackwell, vol. 60(4), pages 327-349, October.
    17. Senay ACIKGOZ & Anil AKCAGLAYAN, 2014. "Turkiye’de Cari Islemler Aciginin Surdurulebilirligi," Ege Academic Review, Ege University Faculty of Economics and Administrative Sciences, vol. 14(1), pages 83-97.
    18. PHILIP E.T. LEWIS & GARRY A. MacDONALD, 1993. "Testing for Equilibrium in the Australian Wage Equation," The Economic Record, The Economic Society of Australia, vol. 69(3), pages 295-304, September.
    19. Campos, Julia & Ericsson, Neil R. & Hendry, David F., 1996. "Cointegration tests in the presence of structural breaks," Journal of Econometrics, Elsevier, vol. 70(1), pages 187-220, January.
    20. Michieka, Nyakundi M. & Gearhart, Richard S., 2018. "Resource curse? The case of Kern County," Resources Policy, Elsevier, vol. 59(C), pages 446-459.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:sae:globus:v:16:y:2015:i:4:p:609-622. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: SAGE Publications (email available below). General contact details of provider: http://www.imi.edu/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.