Impact of Advertisement Expenditure on Firm’s Performance: A Case of FMCG Industry in India

Abstract

This dissertation builds on the existing literature by studying the impact of advertisement expenditure on firm’s performance in India. The research takes a sample of 100 FMCG companies in India and studies the impact of advertising and firm’s performance for the period ranging from 2001-02 to 2010-11. The study uses sales, profits and firm value as measures of firm’s performance. While the data for advertisement expenditure, sales and profits are obtained from the annual reports of the firms concerned as also from the CMIE Prowess database, the computations have been made to arrive at the firm value. Tobin’s Q ratio has been used as a proxy for firm value. Various tools including Mean, Standard Deviation, Coefficient of Variation, Kurtosis, Skewness are applied for getting insights into the data. Econometric analysis including Augmented Dickey-Fuller unit-root test, Vector Auto Regression, Variance Decomposition Analysis, Impulse Response Function, Johansen’s Cointegration and Vector Error Correction Model have been employed to find out the relationship between the variables under reference. The study points towards the positive impact of advertisement expenditure on sales, profitability and firm value. The study further observes that sales Revenue and profitability has a positive impact on firm value.