Advertising and Promotion Expenditures on Business Performance: Comparison between Chinese and Japanese Household Appliance Industry

Abstract

This study begins with measuring Chinese and Japanese listed companies' business performance by the company's market power efficiency and profitability efficiency basing on stochastic frontier analysis in household appliance industry from 2001 to 2004. This estimation shows that Chinese average technical efficiency score is about half of Japanese score on both market power efficiency and profitability efficiency. Then this paper jointly analyzes advertising and R&D activity's effect on the two efficiencies. These estimations indicate that R&D activity cannot promote firm's market power efficiency, but can promote profitability efficiency in long-term; and advertising and promotion would play a significantly positive role to firm's market power and profitability efficiency in short-term.