The Effect Of Advertising And Research And Development Expenditure On The Market Value Of A Firm

The Effect Of Advertising And Research And Development Expenditure On The Market Value Of A Firm

Length: 710 words (2 double-spaced pages)

Rating: Better Essays

Open Document

Essay Preview

I. Introduction
Keith W. Chauvin and Mark Hirschey of the University of Kansas perform research on the effect of advertising and research and development expenditures on the market value of a firm. Current literature finds capital expenditures and termination of poor investments to have a positive impact on firm value while plant closures and liquidations have a negative impact. Research has also shown that a large factor to firm value is an announcement of a company to invest more in research and development. Chauvin and Hirschey’s research expands on this previous research and determines the cross-sectional impact of advertising and R&D expenditures on firm value.
II. Theoretical Analysis
Chauvin and Hirschey primarily segmented their data by industry and size. With a COMPUSTAT data export, the researchers found that advertising is especially high in the educational and miscellaneous manufacturing industry while it is especially low in the heavy manufacturing industry. They also found that R&D spending is highly concentrated in the technology, industrial, and chemical industries but R&D spend is low in service sectors and retail. However, with few exceptions, companies rarely had both high advertising and R&D expenditures. High spending in both was seen mostly in larger firms as budgets tended to be higher in those firms. By analyzing the data across industries, the researchers were able to study this cross-sectional impact of advertising and R&D spending on the value of a firm.
III. Empirical Framework
The majority of the data used in this research was compiled using COMPUSTAT over a three year period across 1500 firms per year. The researchers split the data according to two factors: industry (manufacturing/nonmanufactu...

... middle of paper ...

...xpenditure was significant in large and medium firms.
V. Conclusions
Advertising and R&D expenditures are forms of intangible capital that add value to a firm. Chauvin and Hirschey found that along with other factors, R&D and advertising expenditures have a positive relationship on firm value. The researchers found that there is also a difference in the effectiveness of R&D and advertising in relation to the size of the firm. Because R&D and advertising have been proven to add value to a firm, they can be thought of as investments rather than expenditures. The effectiveness of each also relates to the size and industry of the firm. Understanding what affects the value of a firm as well as what other factors influence the market value (industry and size) is important for any business and in any industry and is relevant to shareholders, analyst, and investors, alike.

Need Writing Help?

Get feedback on grammar, clarity, concision and logic instantly.

Check your paper »

The Role of Advertising in Business Essay

- 1. INTRODUCTION 2. LITERATURE REVIEW 3. RESEARCH OBJECTIVE 4. SOURCES OF DATA 5. RESEARCH DESIGN 6. CONCLUSIONS 7. BIBLIOGRAPHY 1. INTRODUCTION Advertising in business is a type of marketing communication used to encourage, persuade, or manipulate a customer to take or continue to take some action. The desired result is to drive consumer behavior with respect to a commercial offering. The primary role of advertising is to inform potential customers of the products and services in the market and convince them to make a purchase....   [tags: Role of Market Communication]

Better Essays
1792 words (5.1 pages)

The Impact of the Internet on Newspaper and Internet Advertising in Malaysia

- When the Internet was inaugurated to Malaysia by the Malaysian Institute of Microelectronics Systems (MIMOS) in 1987, it is for research and education purposes (Ramadass and Osman, 2012). However, it is later commercialised in 1990 and made available to the public in 1992 as JARING (Joint Advanced Integrated Networking) became the first Internet Service Provider (ISP). In 1996, the Multimedia Super Corridor (MSC) is launched and contributed to the development of information and communication technology (ICT) industry....   [tags: customers, research, technological evolution]

Better Essays
515 words (1.5 pages)

Essay on A Research On Corporate Social Responsibility

- 1.0 BACKGROUND TO THIS RESEARCH Corporate Social Responsibility has increasingly become an important and integral part of the decision making of management and operations of corporations especially in the more developed economies in the world (Follows and Jobber, 1999).This owes largely to corporate scandals that continuously surfaced in various multinational companies. A few examples are the 2008 chinese milk scandal in the consumer food industry where 6 children died and 300,000 others fell ill, the Nike sweatshop scandal where human and working conditions were well below acceptable standards....   [tags: Corporate social responsibility]

Better Essays
1388 words (4 pages)

Target Customers And Influence On Consumer Behavior Essay

- Advertiser’s primary objective is to reach Prospective customers and influence their awareness, attitudes and buying behavior. They spend a lot of money to keep individuals (markets) Interested in their products. To succeed, they need to understand what makes potential customers behave the way they do. The advertisers Goals is to get enough relevant market data to develop accurate profiles of buyers-to-find the common group (and symbols) for communications this involves the study of consumers behavior: The mental and emotional processes and the Physical activities of people who purchase and Use goods and services to satisfy particular needs And wants (Arens, 1996)....   [tags: Marketing, Advertising, Psychology, Emotion]

Better Essays
1017 words (2.9 pages)

The Role Of Expenditure On Research And Development Stage As An Asset Essay

- TQ1. a) AASB Framework para 49(a) has provided the definition of an asset as:” An asset is a resource controlled by the entity as a result of past events and from which future economic benefits are expected to flow”. So there are two criteria that need to satisfied in order to classify expenditure on research and development stage as an asset: • Future economic benefits are expected to flow to the entity: In this case, yes. Only if the research and development stage has succeed in developing an asset/product that entity can use/sell • Control over the future economic benefits has been established by a past event: Uncertain as the research and development can fail and give no result => no con...   [tags: Balance sheet, Asset, Intangible asset]

Better Essays
1652 words (4.7 pages)

Essay about Training and Developmnt Trend Research

- This paper seeks to identify the various emerging trends and current issues surrounding areas of training and development in an organization. The paper has evaluated emerging trends under the topic organizational development in training and strategy, with the focus in Japan. The person who reads this paper will be taken through a comprehensive step by step process to determine the most significant trend. The paper will also mention the impacts this trends have in the future organization, this will then open the platform for my literature review....   [tags: Organizational Development, Training Strategies]

Better Essays
2782 words (7.9 pages)

Article And Research Question On Advertising Essay

- Introduction and Research Question Newspapers have been struggling for audience and advertising dollars since the advent of the internet. The world-wide web brought an influx of new online thought leaders, content curators, and advertising opportunities that cut deeply into a decades-old print business model, from which readers and revenue still hemorrhage today. The desire for news is still strong, but consumption and advertising opportunities have become so fragmented that newspapers now find themselves clamouring for position....   [tags: Newspaper, Mass media, Advertising, The Reader]

Better Essays
951 words (2.7 pages)

The Degenerative Influence of Advertising on Society Essay examples

- Advertising is designed to foster a desire to purchase goods and services, yet it is much deeper than that—advertising is a system of effective manipulation that twists the mentalities of those subjected to it. It shapes people’s views of the world and warps their connections to each other. Therefore, advertising not only shapes their personal values but also distorts them until their principles no longer come from within them. Thus, in my opinion, advertising, unless deeply rooted in high ethical standards, destroys any concept of community, common morality or deep bonding....   [tags: Advertising]

Better Essays
1574 words (4.5 pages)

Advertising : Advertising And Advertising Essay

- Advertising has been round for centuries; starting with print ads, then evolving into radio and TV adverts. Each form of advertisement requires several different strategies in order to make the advertisement effective and appealing to the consumer. With the ever popular rising of the usage of the internet, online advertisements have also become more popular. According to Dr. David Evans, who received his Ph.D. in Economics, e-commerce, or sales processed online, were equal to 34 billion dollars as of 2008....   [tags: Advertising, Online advertising, Internet]

Better Essays
1461 words (4.2 pages)

Advertising Essay

- Advertising 2.1 Overview of the themes First of all, it is important to understand what is advertising and others concepts of it. Advertising is defined as a paid-for form of non-personal communication that is transmitted through a mass media, in order to reach a diversity of audiences (Dibb, Simkin, Pride & Ferrell 2006, p. 538). Moreover, advertising also can be defined as any paid form of non-personal promotion transmitted through a mass medium, means that audiences are far more likely to be interested in the subject matter of the advertising carried by their chosen medium, and is described to be part of the marketing mix under the promotional tools (Brassington & Pettitt 1997, p....   [tags: Business Marketing Advertising]

Free Essays
1064 words (3 pages)