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Market-Based Solutions to Vital Economic Issues


Market-Based Solutions to Vital Economic Issues
Jul 1, 2016

Relating Online, Regional, and National Advertising to Firm Value


Firms spend billions of dollars on advertising every year but remain uncertain about allocation across various advertising vehicles. Allocation decisions are even more complex as online advertising has proliferated and consumers’ media usage patterns have become more fragmented. To determine advertising effectiveness, the authors group firms’ advertising vehicle choices into three theoretically grounded and empirically verified smaller subsets: national, regional, and online advertising. Subsequently, they assess how the three advertising vehicles independently and jointly affect firm performance. Using 12 years of data covering 662 manufacturing firms, the authors find that while national, regional, and online advertising each have a positive and significant main effect on firm performance, each advertising vehicle weakens the effectiveness of the respective other two advertising vehicles (e.g., a 1% increase in online advertising increases firm performance by .32% but also decreases national [.15%] and regional [.03%] advertising effectiveness). A battery of robustness checks triangulates this result. Although all three media vehicles contribute to net increases in performance, the authors discuss the need to strategically integrate them to maximize combined effectiveness.

Note: Research papers posted on ResearchGate, including any findings, may differ from the final version chosen for publication in academic journals.

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