IDEAS home Printed from https://ideas.repec.org/a/sae/manlab/v39y2014i3p275-292.html
   My bibliography  Save this article

Causality Relationship between Advertising Expenditure and Sales: A Study of Indian Service Sector

Author

Listed:
  • Sneha Sharma
  • Deepak Kapur

Abstract

Advertising plays a major role in marketing for the companies. The conventional approach suggests that advertising by the company helps in increasing the sales. This article investigates the relationship between advertising expenditure and sales with reference to Indian service sector. It is analyzing the long-run and short-run properties of the sales–advertising expenditure relationship for 106 companies. Data from year 2000 to 2012 have been used. Augmented Dickey–Fuller test (ADF), Engle–Granger two-step cointegration, Granger causality test and the vector error correction model (VECM) have been used to test the relationship. The results of the five groups based on the size of the companies showed varied results. The companies in the first and second quintiles were analyzed using error correction models since the variables were found to be cointegrated. For the companies in the third, fourth and fifth quintile, the variables were not cointegrated, and these were analyzed using VAR. The causality between sales and advertising expenditure was tested using Granger causality test. The results show that the relationship between advertising expenditure and sales varied with the size of the company. The larger companies showed a bidirectional relationship between advertising and sales, whereas in smaller companies a long-run increase in sales led to a decrease in advertising expenditure.

Suggested Citation

  • Sneha Sharma & Deepak Kapur, 2014. "Causality Relationship between Advertising Expenditure and Sales: A Study of Indian Service Sector," Management and Labour Studies, XLRI Jamshedpur, School of Business Management & Human Resources, vol. 39(3), pages 275-292, August.
    • Handle: RePEc:sae:manlab:v:39:y:2014:i:3:p:275-292
    DOI: 10.1177/0258042X15572425
    as

    Download full text from publisher

    File URL: https://journals.sagepub.com/doi/10.1177/0258042X15572425
    Download Restriction: no
    File URL: https://libkey.io/10.1177/0258042X15572425?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. Baghestani, Hamid, 1991. "Cointegration Analysis of the Advertising-Sales Relationship," Journal of Industrial Economics, Wiley Blackwell, vol. 39(6), pages 671-681, December.
    2. Duffy, Martyn, 2003. "Advertising and food, drink and tobacco consumption in the United Kingdom: a dynamic demand system," Agricultural Economics, Blackwell, vol. 28(1), pages 51-70, January.
    3. 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.
    4. Vicente Esteve & Francisco Requena, 2006. "A Cointegration Analysis of Car Advertising and Sales Data in the Presence of Structural Change," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 13(1), pages 111-128.
    5. Junsoo Lee & B. S. Shin & In Chung, 1996. "Causality between advertising and sales: new evidence from cointegration," Applied Economics Letters, Taylor & Francis Journals, vol. 3(5), pages 299-301.
    6. 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.
    7. Ouyang, Ming & Zhou, Dongsheng & Zhou, Nan, 2002. "Estimating marketing persistence on sales of consumer durables in China," Journal of Business Research, Elsevier, vol. 55(4), pages 337-342, April.
    8. Josea. Pagan & Sukhjit Sethi & Gokce Soydemir, 2001. "The impact of promotion/advertising expenditures on citrus sales," Applied Economics Letters, Taylor & Francis Journals, vol. 8(10), pages 659-663.
    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. Crespo Cuaresma, Jesus & Stöckl, Matthias, 2012. "The Effect of Marketing Spending on Sales in the Premium Car Segment: New Evidence from Germany," Working Papers in Economics 2012-2, University of Salzburg.
    2. Germano, Fabrizio & Meier, Martin, 2013. "Concentration and self-censorship in commercial media," Journal of Public Economics, Elsevier, vol. 97(C), pages 117-130.
    3. Vicente Esteve & Francisco Requena, 2006. "A Cointegration Analysis of Car Advertising and Sales Data in the Presence of Structural Change," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 13(1), pages 111-128.
    4. Rui Qi & David A Cárdenas & Xichen Mou & Simon Hudson, 2018. "The strategic value of advertising expenditures in the tourism and hospitality industry," Tourism Economics, , vol. 24(7), pages 872-888, November.
    5. Shalini Nath Tripathi & Dheeraj Misra & Masood Siddiqui, 2020. "Impact of Advertising Intensity on Market Risk of a Firm: A Study on the Indian Consumer Goods Sector," Global Business Review, International Management Institute, vol. 21(6), pages 1376-1386, December.
    6. 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.
    7. Fabrizio Germano, 2008. "On commercial media bias," Economics Working Papers 1133, Department of Economics and Business, Universitat Pompeu Fabra, revised Apr 2009.
    8. Zapata, Hector O. & Gil, Jose M., 1999. "Cointegration and causality in international agricultural economics research," Agricultural Economics, Blackwell, vol. 20(1), pages 1-9, January.
    9. repec:agr:journl:v:4(605):y:2015:i:4(605):p:133-144 is not listed on IDEAS
    10. Carlos P. Barros & Luis A. Gil-Alana & Zhongfei Chen, 2016. "Exchange rate persistence of the Chinese yuan against the US dollar in the NDF market," Empirical Economics, Springer, vol. 51(4), pages 1399-1414, December.
    11. Cumhur ÞAHÝN & Hüseyin ALTAY, 2016. "Examination of the Relationship between Turkey’s Credit Default Swap (CDS) Points and Unemployment," Eurasian Business & Economics Journal, Eurasian Academy Of Sciences, vol. 4(4), pages 52-67, January.
    12. Kayhan, Selim & Adiguzel, Uğur & Bayat, Tayfur & Lebe, Fuat, 2010. "Causality Relationship between Real GDP and Electricity Consumption in Romania (2001-2010)," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(4), pages 169-183, December.
    13. Ataman, B.M., 2007. "Managing brands," Other publications TiSEM 462dcbba-2ac1-46d1-a61c-f, Tilburg University, School of Economics and Management.
    14. Mu, Jianhong E. & McCarl, Bruce A. & Bessler, David A., 2013. "Impacts of BSE and Avian Influenza on U.S. Meat Demand," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. 150392, Agricultural and Applied Economics Association.
    15. Umit Bulut, 2016. "How Far Ahead Does the Central Bank of the Republic of Turkey Look?," Journal of Central Banking Theory and Practice, Central bank of Montenegro, vol. 5(1), pages 99-111.
    16. Gijsenberg, Maarten J., 2014. "Going for gold: Investigating the (non)sense of increased advertising around major sports events," International Journal of Research in Marketing, Elsevier, vol. 31(1), pages 2-15.
    17. Pierpaolo Pierani & Silvia Tiezzi, 2009. "Addiction and interaction between alcohol and tobacco consumption," Empirical Economics, Springer, vol. 37(1), pages 1-23, September.
    18. repec:zwi:journl:v:6:y:2011:i:4:p:335-353 is not listed on IDEAS
    19. Katircioğlu, Salih Turan, 2014. "Testing the tourism-induced EKC hypothesis: The case of Singapore," Economic Modelling, Elsevier, vol. 41(C), pages 383-391.
    20. repec:ebl:ecbull:v:3:y:2008:i:14:p:1-10 is not listed on IDEAS
    21. Gelper, Sarah & Wilms, Ines & Croux, Christophe, 2016. "Identifying Demand Effects in a Large Network of Product Categories," Journal of Retailing, Elsevier, vol. 92(1), pages 25-39.
    22. M.G. Dekimpe & D.M. Hanssens, 2005. "Persistence Models and Marketing Strategy," Review of Business and Economic Literature, KU Leuven, Faculty of Economics and Business (FEB), Review of Business and Economic Literature, vol. 0(5), pages 855-884.
    23. Arzu Tay Bayramoglu & Deniz Sukruoglu, 2016. "Non-Energy Import Demand Function in Turkey: New Evidence," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 6(12), pages 750-761, December.

    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:manlab:v:39:y:2014:i:3:p:275-292. 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.xlri.ac.in/ .

    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.