Relationship between Profitability and Advertising Expenditure: A Study of Selected Companies in Indian Manufacturing Sector

Abstract

The present paper attempts to analyze the growth pattern in advertising expenditure and profitability as well as the linkage between them in selected fifty companies which were selected by taking top five companies from each of the ten selected industries in the Indian manufacturing sector for the period 2002 to 2016. In this study return on capital employed (ROCE) was taken as the overall profitability measure. A recursive simultaneous equation framework as suggested by the outcome derived from the endogenity test was used in explaining the variation of ROCE as well as advertising expenditure on the basis of some identified explanatory variables. The study found that, inter-industry variation of advertisement expenditure gradually stepped up over time. The overall regression results revealed that FATR, ITR, DTR and CTR had significant positive influence on the profitability while MS and estimated ROCE significantly influenced the advertising expenditure.