Advertising and financial performance: insight from a competitive market in Africa

Abstract

Purpose This study aims to examine the relationship between advertisement expenditure and firm performance as well as the moderating effects of firm age and size on this relationship. Design/methodology/approach Twenty-eight selected companies listed on the Nigerian stock exchange were examined. The study used multiple regression, a quantitative research method, to capture both the direct and moderating effects. Findings The findings show that advertisement has a positive relationship with sales but an insignificant relationship with return on asset. Furthermore, the results indicate that larger firms outperform smaller ones when using advertisements to enhance their sales. On the contrary, there is no significant difference between the use of advertisement by young and older firms in improving financial performance. Originality/value Due to the often-wrong use of resource base view in the advertisement–performance relationship and contradiction in research findings, this paper re-conceptualize advertisement as a necessary investment (just like plant and equipment) but not an investment that provide strategic value. The paper also makes novel argument by theorizing a negative relationship between advertisement and firms’ performance in the Nigerian context.