Advertising intensity and firm performance: the influences of firm age and cultural communication styles

Abstract

PurposeAdvertising intensity is treated either as a resource that allows firms to create competitive advantages (intangible asset view) or as an investment to build advertising resource (investment expense view). This current research supports the investment expense view. The authors do so by examining the moderating role of firm age (a proxy for knowledge) in the relationship between advertising intensity and performance as well as the influence of cultural communication styles on this moderation.Design/methodology/approachSecondary data were collected from multiple sources. With a sample of 262 companies from 10 countries (149 firms from high-context cultures and 113 firms from low-context cultures), ordinary least squares was used to estimate the regression coefficients to test the hypotheses. An instrumental variable approach with two-stage least squares estimates was used to address an endogeneity bias. Average industry advertising intensity excluding the focal firm was used as an instrumental variable.FindingsThe findings demonstrate that firm age significantly moderates the advertising intensity/performance relationship, but this moderation is only significant in high-context cultures. These findings imply that firms within high-context cultures must continually invest in advertising expenditures, while firms in low-context cultures may not need to do so to increase performance.Practical implicationsThe results of this study provide insight into the debate of whether advertising expenditures boost performance, as well as provide international marketing managers with a clearer picture on how to invest in advertising within their respective markets.Originality/valueA majority of the studies that examine the advertising intensity/performance link rely solely on the resource-based view. The authors utilize a multi-theoretical perspective to provide a fine-grained understanding of this relationship. Moreover, the authors apply the investment expense view to examine advertising intensity as an investment to build advertising resources, rather than a resource. This investment must be incorporated with the knowledge to properly employ the investment to develop advertising resources. Further, the authors find that firms expanding into high-context cultures must devote more effort into developing advertising capabilities to properly employ advertising resources than firms in low-context cultures.