Bank marketing investments and bank performance

Donald J. Mullineaux (Gatton College of Business and Economics, University of Kentucky, Lexington, Kentucky, USA)
Mark K. Pyles (College of Charleston, Charleston, South Carolina, USA)

Journal of Financial Economic Policy

ISSN: 1757-6385

Publication date: 9 November 2010

Abstract

Purpose

The purpose of this paper is to examine empirically the effects of investments by US banks in advertising and promotion on their performance in the areas of profits and market share.

Design/methodology/approach

The model presented in the paper is motivated by the theory of the profit function. We estimate a base model with a fixed‐effects panel including an AR(1) disturbance over the period 2002‐2006. To test for selection bias, we also estimate a Heckman model.

Findings

It is found that bank profits and market share increase significantly with increased spending on advertising and promotion. Also, significant evidence is found of increasing returns to scale in this type of marketing expenditure. It is also found that increased expenditures on branching result in higher profits and increased market share, but without scale effects. The results are robust, the inclusion of variables is not suggested by profit function theory and corrected for prospective selection bias.

Originality/value

The extant literature does not include research on the effectiveness of bank marketing from the viewpoint of its impact on profit performance. The findings should be of interest to academics in finance and marketing and to banking practitioners.

Keywords

Citation

Mullineaux, D. and Pyles, M. (2010), "Bank marketing investments and bank performance", Journal of Financial Economic Policy, Vol. 2 No. 4, pp. 326-345. https://doi.org/10.1108/17576381011100856

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Publisher

:

Emerald Group Publishing Limited

Copyright © 2010, Emerald Group Publishing Limited

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