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Recession-proof marketing? Unraveling the impact of advertising efficiency on stock volatility

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  • Al-Gamrh, Bakr
  • Rasul, Tareq

Abstract

The current study examines how corporate advertising efficiency (estimated using data envelopment analysis) is impacted during economic recessions. The study then investigates how advertising efficiency affects stock price volatility in recession and non-recession times. Drawing on the resource-based view and contingency theory, this study utilizes generalized method of moments (GMM) estimation to analyze a sample of US listed firms. The findings reveal that advertising efficiency tends to decline during economic downturns. Moreover, the study demonstrates that firms with higher advertising efficiency experience more stable stock prices during normal economic conditions. However, an interesting observation emerges during recessions, as firms with strong advertising efficiency face higher stock price volatility. This suggests that while consumers are attracted to efficient advertisements, investors do not assign the same value to advertising spending during economic contractions. Importantly, these results are robust to endogeneity issues and various measurements of variables.

Suggested Citation

  • Al-Gamrh, Bakr & Rasul, Tareq, 2024. "Recession-proof marketing? Unraveling the impact of advertising efficiency on stock volatility," International Review of Financial Analysis, Elsevier, vol. 92(C).
    • Handle: RePEc:eee:finana:v:92:y:2024:i:c:s105752192400019x
    DOI: 10.1016/j.irfa.2024.103087
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    More about this item

    Keywords

    Advertising efficiency; Stock price; Recessions; Economic change;
    All these keywords.

    JEL classification:

    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D

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