Premium
Value relevance of advertising expenditure: A review of the literature
Author(s) -
Ali Shah Syed Zulfiqar,
Akbar Saeed
Publication year - 2008
Publication title -
international journal of management reviews
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 4.475
H-Index - 107
eISSN - 1468-2370
pISSN - 1460-8545
DOI - 10.1111/j.1468-2370.2007.00228.x
Subject(s) - valuation (finance) , advertising , profitability index , economics , value (mathematics) , relevance (law) , empirical evidence , marketing , business , accounting , political science , philosophy , finance , epistemology , machine learning , computer science , law
This paper presents a review of the relevant empirical literature on advertising value relevance. The current dominant accounting practice is to treat advertising as a current period expense. There has been growing evidence, however, to suggest that advertising should be viewed as an investment in long‐term brand equity. While the primary focus is on the valuation studies of advertising expenditure, the paper also provides an overview of various other studies that relate advertising to profitability or sales of the firm or industry to investigate the effects of advertising expenditure. As a consequence, it is emphasized that there has been a recent shift to the use of valuation models in exploring the nature of advertising expenditure. Since market value captures both the current and future profitability effects of advertising, valuation models are often seen as a better alternative in exploring the intangible nature of advertising expenditure. It is found that the bulk of evidence on advertising value relevance comes from the US, where there has historically been greater disclosure of advertising expenditure. There appears to be little evidence on this matter in the UK, however. This may largely be attributed to the lack of advertising data availability in the UK.