Advertising effectiveness on financial performance of banking sector: Turkey case

Abstract

Purpose The purpose of this paper is to analyze the association between banks’ advertising expenses and accounting measures of income and profitability for banking sector. Design/methodology/approach In this study the authors have used distributed lag models to investigate the association between advertising expenses and banks’ financial performance. To investigate the long-term effect of advertising expenses on financial performance of banking sector Koyck’s distributed lag models have been used. Findings The results confirm a significant and positive association between advertising expenses and financial performance. Besides its positive effect, the authors provide a basis for detecting the extent to which advertising has long-term benefits. The results show a positive association between advertising expenses and financial performance that extend that extends over time, thereby suggesting that advertising expenses should be capitalized and then amortized instead of being incurred as an expense immediately. Originality/value Although there are lots of studies about advertising and its effect on financial position of firms, research about advertising effects on financial performance of banking sector is very scarce. Therefore, this study has a potential to shed light on research about marketing aspect of financial sector. Besides, empirical results show a positive association between advertising expenses and financial performance that extend that extends over time (interest income, total operating income and return on assets), thereby suggesting that advertising expenses should be capitalized and then amortized instead of being incurred as an expense immediately. To sum it all, the paper finds an evidence for banking sector that advertising inholds “future economic benefits” which is the key criterion necessary for asset recognition.