IDEAS home Printed from https://ideas.repec.org/a/kap/revind/v45y2014i1p79-97.html
   My bibliography  Save this article

Foreign Entry and Firm Advertising Intensity: Evidence from China

Author

Listed:
  • Sizhong Sun

Abstract

This paper investigates the determinants of advertising intensity at the firm level by focusing on the role of foreign entry. In a monopolistically competitive market with heterogeneous firms, we show that foreign entry affects the expected advertising intensity of domestic firms through its impact on the cost of resources, brand image, and productivity spillovers and its impact on firms’ exit behaviour. Then, using comprehensive firm-level data from China’s manufacturing sector between 2005 and 2007, we test this hypothesis and find that foreign entry significantly affects advertising intensity. Copyright Springer Science+Business Media New York 2014

Suggested Citation

  • Sizhong Sun, 2014. "Foreign Entry and Firm Advertising Intensity: Evidence from China," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 45(1), pages 79-97, August.
    • Handle: RePEc:kap:revind:v:45:y:2014:i:1:p:79-97
    DOI: 10.1007/s11151-014-9426-z
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1007/s11151-014-9426-z
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1007/s11151-014-9426-z?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
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Sun, Sizhong, 2012. "The role of FDI in domestic exporting: Evidence from China," Journal of Asian Economics, Elsevier, vol. 23(4), pages 434-441.
    2. Ryan Fang & Martin Richardson, 2017. "Private and Public Incentives for Mergers in the Face of Foreign Entry," World Scientific Book Chapters,in: Dimensions of Trade Policy, chapter 13, pages 263-282 World Scientific Publishing Co. Pte. Ltd..
    3. Ryan Fang & Martin Richardson, 2017. "Private and Public Incentives for Mergers in the Face of Foreign Entry," World Scientific Book Chapters, in: Dimensions of Trade Policy, chapter 13, pages 263-282, World Scientific Publishing Co. Pte. Ltd..
    4. Kirmani, Amna, 1990. "The Effect of Perceived Advertising Costs on Brand Perceptions," Journal of Consumer Research, Journal of Consumer Research Inc., vol. 17(2), pages 160-171, September.
    5. Rojas, Christian & Peterson, Everett B., 2008. "Demand for differentiated products: Price and advertising evidence from the U.S. beer market," International Journal of Industrial Organization, Elsevier, vol. 26(1), pages 288-307, January.
    6. Holger Görg & David Greenaway, 2016. "Much Ado about Nothing? Do Domestic Firms Really Benefit from Foreign Direct Investment?," World Scientific Book Chapters, in: MULTINATIONAL ENTERPRISES AND HOST COUNTRY DEVELOPMENT Volume 53: World Scientific Studies in International Economics, chapter 9, pages 163-189, World Scientific Publishing Co. Pte. Ltd..
    7. Stephen Martin, 1979. "Advertising, Concentration, and Profitability: The Simultaneity Problem," Bell Journal of Economics, The RAND Corporation, vol. 10(2), pages 639-647, Autumn.
    8. Craig Depken & Arthur Snow, 2008. "The strategic nature of advertising in segmented markets," Applied Economics, Taylor & Francis Journals, vol. 40(23), pages 2987-2994.
    9. Magnus Blomström & Ari Kokko & Mario Zejan, 2000. "Multinational Corporations and Spillovers," Palgrave Macmillan Books, in: Foreign Direct Investment, chapter 8, pages 101-133, Palgrave Macmillan.
    10. Buxton, A J & Davies, S W & Lyons, B R, 1984. "Concentration and Advertising in Consumer and Producer Markets," Journal of Industrial Economics, Wiley Blackwell, vol. 32(4), pages 451-464, June.
    11. Roger Smeets, 2008. "Collecting the Pieces of the FDI Knowledge Spillovers Puzzle," The World Bank Research Observer, World Bank, vol. 23(2), pages 107-138, March.
    12. Martin Richardson, 1998. "Foreign entry and domestic welfare," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 134(2), pages 250-262, June.
    13. Chemmanur, Thomas & Yan, An, 2009. "Product market advertising and new equity issues," Journal of Financial Economics, Elsevier, vol. 92(1), pages 40-65, April.
    14. Immordino Giovanni, 2009. "Advertising and Cost Reduction," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 9(1), pages 1-15, April.
    15. Kamal Saggi, 2002. "Trade, Foreign Direct Investment, and International Technology Transfer: A Survey," The World Bank Research Observer, World Bank, vol. 17(2), pages 191-235, September.
    16. Slade, Margaret E, 1995. "Product Rivalry with Multiple Strategic Weapons: An Analysis of Price and Advertising Competition," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 4(3), pages 445-476, Fall.
    17. Michael S. Willis & Richard T. Rogers, 1998. "Market Share Dispersion Among Leading Firms as a Determinant of Advertising Intensity," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 13(5), pages 495-508, October.
    18. Samiee, Saeed & Jeong, Insik & Pae, Jae Hyeon & Tai, Susan, 2003. "Advertising standardization in multinational corporations: The subsidiary perspective," Journal of Business Research, Elsevier, vol. 56(8), pages 613-626, August.
    19. Chang-Yang Lee, 2002. "Advertising, Its Determinants, and Market Structure," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 21(1), pages 89-101, August.
    20. Gustavo Grullon & George Kanatas, 2006. "The Impact of Capital Structure on Advertising Competition: An Empirical Study," The Journal of Business, University of Chicago Press, vol. 79(6), pages 3101-3124, November.
    21. Caves, Richard E, 1974. "Multinational Firms, Competition, and Productivity in Host-Country Markets," Economica, London School of Economics and Political Science, vol. 41(162), pages 176-193, May.
    22. Gustavo Grullon, 2004. "Advertising, Breadth of Ownership, and Liquidity," Review of Financial Studies, Society for Financial Studies, vol. 17(2), pages 439-461.
    23. C. Edward Fee & Charles J. Hadlock & Joshua R. Pierce, 2009. "Investment, Financing Constraints, and Internal Capital Markets: Evidence from the Advertising Expenditures of Multinational Firms," Review of Financial Studies, Society for Financial Studies, vol. 22(6), pages 2361-2392, June.
    24. Bibek Banerjee & Subir Bandyopadhyay, 2003. "Advertising Competition Under Consumer Inertia," Marketing Science, INFORMS, vol. 22(1), pages 131-144, January.
    25. Hao Zhao, 2000. "Raising Awareness and Signaling Quality to Uninformed Consumers: A Price-Advertising Model," Marketing Science, INFORMS, vol. 19(4), pages 390-396, January.
    26. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, vol. 71(6), pages 1695-1725, November.
    27. Strickland, Allyn D & Weiss, Leonard W, 1976. "Advertising, Concentration, and Price-Cost Margins," Journal of Political Economy, University of Chicago Press, vol. 84(5), pages 1109-1121, October.
    28. Li, Xiaoying & Liu, Xiaming & Parker, David, 2001. "Foreign direct investment and productivity spillovers in the Chinese manufacturing sector," Economic Systems, Elsevier, vol. 25(4), pages 305-321, December.
    29. Sizhong Sun, 2009. "How Does FDI Affect Domestic Firms’ Exports? Industrial Evidence," The World Economy, Wiley Blackwell, vol. 32(8), pages 1203-1222, August.
    30. Gary Jefferson & Thomas Rawski & Yifan Zhang, 2008. "Productivity growth and convergence across China's industrial economy," Journal of Chinese Economic and Business Studies, Taylor & Francis Journals, vol. 6(2), pages 121-140.
    31. Zheng, Yuqing & Kaiser, Harry M., 2008. "Advertising and U. S. Nonalcoholic Beverage Demand," Agricultural and Resource Economics Review, Cambridge University Press, vol. 37(2), pages 147-159, October.
    32. Blomstrom, Magnus & Kokko, Ari, 1998. "Multinational Corporations and Spillovers," Journal of Economic Surveys, Wiley Blackwell, vol. 12(3), pages 247-277, July.
    33. Sizhong Sun, 2010. "Heterogeneity of FDI Export Spillovers and Its Policy Implications: The Experience of China," Asian Economic Journal, East Asian Economic Association, vol. 24(4), pages 289-303, December.
    34. Sutton, C J, 1974. "Advertising, Concentration and Competition," Economic Journal, Royal Economic Society, vol. 84(333), pages 56-69, March.
    35. Athanasia Mavrommati & Athanasios Papadopoulos, 2005. "Measuring advertising intensity and intangible capital in the Greek food industry," Applied Economics, Taylor & Francis Journals, vol. 37(15), pages 1777-1787.
    36. K. Oustapassidis & A. Vlachvei & O. Notta, 2000. "Efficiency and Market Power in Greek Food Industries," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 82(3), pages 623-629.
    37. Peter J Buckley & Jeremy Clegg & Chengqi Wang, 2007. "Is the relationship between inward FDI and spillover effects linear? An empirical examination of the case of China," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 38(3), pages 447-459, May.
    38. C. Clark & Ulrich Doraszelski & Michaela Draganska, 2009. "The effect of advertising on brand awareness and perceived quality: An empirical investigation using panel data," Quantitative Marketing and Economics (QME), Springer, vol. 7(2), pages 207-236, June.
    39. Albert G. Z. Hu & Gary H. Jefferson & Qian Jinchang, 2005. "R&D and Technology Transfer: Firm-Level Evidence from Chinese Industry," The Review of Economics and Statistics, MIT Press, vol. 87(4), pages 780-786, November.
    40. Y Wei & X Liu, 2006. "Productivity spillovers from R&D, exports and FDI in China's manufacturing sector," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 37(4), pages 544-557, July.
    41. Chengqi Wang & Jeremy Clegg & Mario Kafouros, 2009. "Country-of-Origin Effects of Foreign Direct Investment," Management International Review, Springer, vol. 49(2), pages 179-198, April.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Cao, Zong-Hong & Zhou, Yong-Wu & Zhao, Ju & Li, Chang-Wen, 2015. "Entry mode selection and its impact on an incumbent supply chain coordination," Journal of Retailing and Consumer Services, Elsevier, vol. 26(C), pages 1-13.
    2. Liu, Yi & Li, Xue & Lahiri, Sajal, 2016. "Determinants of privatization in China: The role of the presence of foreign firms," China Economic Review, Elsevier, vol. 41(C), pages 196-221.

    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. Anwar, Sajid & Sun, Sizhong, 2014. "Heterogeneity and curvilinearity of FDI-related productivity spillovers in China's manufacturing sector," Economic Modelling, Elsevier, vol. 41(C), pages 23-32.
    2. Sizhong Sun & Ligang Song & Peter Drysdale, 2011. "The Role of Geographical Proximity in FDI Productivity Spillovers in China," Chapters, in: Lilai Xu (ed.), China’s Economy in the Post-WTO Environment, chapter 7, Edward Elgar Publishing.
    3. Sajid Anwar & Sizhong Sun, 2016. "Foreign direct investment, domestic sales and exports of local firms: a regional perspective from China," Journal of the Asia Pacific Economy, Taylor & Francis Journals, vol. 21(3), pages 325-338, July.
    4. Sun, Sizhong, 2012. "The role of FDI in domestic exporting: Evidence from China," Journal of Asian Economics, Elsevier, vol. 23(4), pages 434-441.
    5. Sun, Sizhong & Anwar, Sajid, 2017. "Foreign direct investment and the performance of indigenous firms in China’s textile industry," The Quarterly Review of Economics and Finance, Elsevier, vol. 65(C), pages 107-113.
    6. Neil Foster-McGregor, 2012. "Innovation and Technology Transfer across Countries," wiiw Research Reports 380, The Vienna Institute for International Economic Studies, wiiw.
    7. Sun, Sizhong, 2009. "The role of foreign firms in domestic exporting," MPRA Paper 18486, University Library of Munich, Germany.
    8. Wang, Jue & Liu, Xiaming & Li, Xiaoying, 2009. "A dual-role typology of multinational subsidiaries," International Business Review, Elsevier, vol. 18(6), pages 578-591, December.
    9. Liu, Xiaohui & Zou, Huan, 2008. "The impact of greenfield FDI and mergers and acquisitions on innovation in Chinese high-tech industries," Journal of World Business, Elsevier, vol. 43(3), pages 352-364, July.
    10. Sun, Sizhong, 2009. "Impact of aggregation on measuring FDI spillovers: a Monte Carlo appraisal," MPRA Paper 15340, University Library of Munich, Germany.
    11. Yuandi Wang & Lutao Ning & Jian Li & Martha Prevezer, 2016. "Foreign Direct Investment Spillovers and the Geography of Innovation in Chinese Regions: The Role of Regional Industrial Specialization and Diversity," Regional Studies, Taylor & Francis Journals, vol. 50(5), pages 805-822, May.
    12. Sajid Anwar & Sizhong Sun, 2019. "Firm heterogeneity and FDI-related productivity spillovers: A theoretical investigation," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 28(1), pages 1-10, January.
    13. Jue Wang & Yingqi Wei & Xiaming Liu & Chengang Wang & Hua Lin, 2014. "Simultaneous Impact of the Presence of Foreign MNEs on Indigenous Firms’ Exports and Domestic Sales," Management International Review, Springer, vol. 54(2), pages 195-223, April.
    14. Hallin, Christina & Holmström Lind, Christine, 2012. "Revisiting the external impact of MNCs: An empirical study of the mechanisms behind knowledge spillovers from MNC subsidiaries," International Business Review, Elsevier, vol. 21(2), pages 167-179.
    15. Sara L. McGaughey & Pascalis Raimondos & Lisbeth Cour, 0. "Foreign influence, control, and indirect ownership: Implications for productivity spillovers," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 0, pages 1-22.
    16. Mao, Zhenxing (Eddie) & Yang, Yang, 2016. "FDI spillovers in the Chinese hotel industry: The role of geographic regions, star-rating classifications, ownership types, and foreign capital origins," Tourism Management, Elsevier, vol. 54(C), pages 1-12.
    17. Orlic, Edvard & Hashi, Iraj & Hisarciklilar, Mehtap, 2018. "Cross sectoral FDI spillovers and their impact on manufacturing productivity," International Business Review, Elsevier, vol. 27(4), pages 777-796.
    18. Elisa Giuliani & Chiara Macchi, 2014. "Multinational corporations’ economic and human rights impacts on developing countries: a review and research agenda," Cambridge Journal of Economics, Oxford University Press, vol. 38(2), pages 479-517.
    19. Crespo, Nuno & Fontoura, Maria Paula, 2007. "Determinant Factors of FDI Spillovers - What Do We Really Know?," World Development, Elsevier, vol. 35(3), pages 410-425, March.
    20. Wang, Chengqi & Kafouros, Mario I., 2009. "What factors determine innovation performance in emerging economies? Evidence from China," International Business Review, Elsevier, vol. 18(6), pages 606-616, December.

    More about this item

    Keywords

    Advertising intensity; Foreign entry; FDI; China; D22; F23; L10; L60; M37;
    All these keywords.

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • L60 - Industrial Organization - - Industry Studies: Manufacturing - - - General
    • M37 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Advertising

    Statistics

    Access and download statistics

    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:kap:revind:v:45:y:2014:i:1:p:79-97. 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: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    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.