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The Durability of Advertising Revisited

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  • Landes, Elisabeth M
  • Rosenfield, Andrew M

Abstract

Recent cross-section studies find that advertising is relatively long-lived, providing support for treating advertising as capital. This paper models the firm's advertising decision, treating advertising and product quality as complements. The model predicts that failing to control for differences in firm-specific factors positively correlated with the return to advertising will understate advertising's direct effect on sales and overstate its durability. The authors' empirical study, using several years of data for over four hundred firms, confirms these predictions: advertising's apparent life shrinks dramatically when firm-specific factors are held constant. They also find no support for the steady-state assumptions critical to intangible assets models. Copyright 1994 by Blackwell Publishing Ltd.

Suggested Citation

  • Landes, Elisabeth M & Rosenfield, Andrew M, 1994. "The Durability of Advertising Revisited," Journal of Industrial Economics, Wiley Blackwell, vol. 42(3), pages 263-276, September.
    • Handle: RePEc:bla:jindec:v:42:y:1994:i:3:p:263-76
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    Cited by:

    1. Carol Corrado & Charles Hulten & Daniel Sichel, 2005. "Measuring Capital and Technology: An Expanded Framework," NBER Chapters, in: Measuring Capital in the New Economy, pages 11-46, National Bureau of Economic Research, Inc.
    2. Carol Corrado & Charles Hulten & Daniel Sichel, 2009. "Intangible Capital And U.S. Economic Growth," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 55(3), pages 661-685, September.
    3. Roth, Felix & Sen, Ali & Rammer, Christian, 2021. "Intangible Capital and Firm-Level Productivity – Evidence from Germany," Hamburg Discussion Papers in International Economics 9, University of Hamburg, Department of Economics.
    4. Ksenia V. Bobyleva, 2022. "The Contribution of Intangible Assets to the Growth of the Russian Economy," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 68(S1), pages 52-70, April.
    5. 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.
    6. Ryan A. Decker & Pablo N. D'Erasmo & Hernan Moscoso Boedo, 2016. "Market Exposure and Endogenous Firm Volatility over the Business Cycle," American Economic Journal: Macroeconomics, American Economic Association, vol. 8(1), pages 148-198, January.
    7. Edquist, Harald, 2011. "Intangible Investment and the Swedish Manufacturing and Service Sector Paradox," Working Paper Series 863, Research Institute of Industrial Economics.
    8. Felix Roth & Anna-Elisabeth Thum, 2022. "Intangible Capital and Labor Productivity Growth: Panel Evidence for the EU from 1998–2005," Contributions to Economics, in: Intangible Capital and Growth, chapter 0, pages 101-128, Springer.
    9. Cecilia Iona Lasinio & Massimiliano Iommi & Stefano Manzocchi, 2011. "Intangible capital and Productivity Growth in European Countries," Working Papers LuissLab 1191, Dipartimento di Economia e Finanza, LUISS Guido Carli.
    10. Berger Florian, 2012. "Measuring the Knowledge Economy – Intangible Spending and Investment in Germany," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 232(1), pages 12-30, February.
    11. Roth,Felix & Thum, Anna-Elisabeth, 2010. "Does intangible capital affect economic growth?," CEPS Papers 3667, Centre for European Policy Studies.
    12. Kirsten Wüst & Bernd Kuppinger, 2012. "Is everything just a game? From the discrete to the continuous time modeling of corporate strategy games," Metrika: International Journal for Theoretical and Applied Statistics, Springer, vol. 23(3), pages 211-228, December.
    13. Wen Chen & Robert Inklaar, 2016. "Productivity spillovers of organization capital," Journal of Productivity Analysis, Springer, vol. 45(3), pages 229-245, June.
    14. Requena-Silvente, Francisco & Walker, James, 2007. "Investigating sales and advertising rivalry in the UK multipurpose vehicle market (1995-2002)," Journal of Economics and Business, Elsevier, vol. 59(2), pages 163-180.
    15. David Paton, 2002. "Advertising, quality and sales," Applied Economics, Taylor & Francis Journals, vol. 34(4), pages 431-438.
    16. Larkin, Yelena, 2013. "Brand perception, cash flow stability, and financial policy," Journal of Financial Economics, Elsevier, vol. 110(1), pages 232-253.
    17. Zakaria Babutsidze, 2009. "Learning How to Consume and Returns to Product Promotion," Papers on Economics and Evolution 2009-05, Philipps University Marburg, Department of Geography.
    18. 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.
    19. Zakaria Babutsidze, 2011. "Returns to product promotion when consumers are learning how to consume," Journal of Evolutionary Economics, Springer, vol. 21(5), pages 783-801, December.
    20. Crass, Dirk & Licht, Georg & Peters, Bettina, 2014. "Intangible assets and investments at the sector level: Empirical evidence for Germany," ZEW Discussion Papers 14-049, ZEW - Leibniz Centre for European Economic Research.

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