Advertising and Financial Performance in the Tourism Industry: The Moderating Role of The Brand Architecture Strategy

Financial resources are considered one of the important economic resources, which need to be allocated wisely. Despite the increased interest in understanding whether advertising represents an investment or an expense, research on the link between advertising and financial performance is limited. Hence, this study aims to investigate the effect of advertising spending on both operating and market financial performance as well as to analyze the moderating role of brand architecture strategy in the tourism industry. Fixed-effects regression estimations were used to test the proposed effects based on a sample of publicly-listed hospitality firms in the US. The results show that advertising spending boosts both operating and market financial performance. Furthermore, firms applying the house-of-brands strategy were found to benefit more from the positive effects of advertising on return on equity and market value. As such, this study extends the current literature by showing that advertisement represents an investment that contributes to financial performance. Additionally, this research provides the first empirical evidence for the moderating effect of brand strategy on the advertisement and financial performance link. The f indings also provide implications for industry practitioners to make budget decisions and for investors to use advertising expenditures and brand strategy as investment criteria in investing decisions.