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Effect of advertising spending on operating and market performance of banks: empirical evidence from Bangladesh

Author

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  • Md. Ibrahim Molla
  • Md. Kayes Bin Rahaman

Abstract

Purpose - The purpose of the paper is to empirically explore the economic effect of advertising spending on the performance of banks on a sample consisting of all banks listed on the Dhaka Stock Exchange over the period spanning from 2011 to 2019. Design/methodology/approach - A dynamic panel data autoregressive approach of two-step system generalized method of moments (2-SGMM) estimation technique has been adopted in this study to analyze the contemporary and carryover effect of advertising on the financial performance of banks. Findings - The findings indicate that advertising expenditure boosts banks' accounting returns but not their market value. Furthermore, advertising has a negative carryover effect on the financial performance of banks and is statistically significant for operating profit and return on equity. This finding demonstrates that the economic benefits of advertising expenditure lapse entirely within the current period and ought to be treated as an expense since it does not bring any future return for the banks in Bangladesh. In addition, this paper also offers no critical contrast between the impact of advertising spending on the performance of both conventional and Islamic banks operating in Bangladesh. Originality/value - To the best of the authors' knowledge, no study so far has looked into the effect of advertising on the profitability and the market value of the banks operating in Bangladesh, and this is the first study that explores this relationship.

Suggested Citation

  • Md. Ibrahim Molla & Md. Kayes Bin Rahaman, 2021. "Effect of advertising spending on operating and market performance of banks: empirical evidence from Bangladesh," Asian Journal of Accounting Research, Emerald Group Publishing Limited, vol. 7(1), pages 97-110, October.
  • Handle: RePEc:eme:ajarpp:ajar-06-2021-0084
    DOI: 10.1108/AJAR-06-2021-0084
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    More about this item

    Keywords

    Advertising; Conventional banks; Islamic banks; System GMM; Bangladesh; G21; M37;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • M37 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Advertising

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