Agency problems and the value of advertising expenditures in an emerging market: role of product market competition

Abstract

Purpose

This paper documents the impact of product market competition on the value of advertising expenditures.

Design/methodology/approach

The authors use the data for non-financial firms from India and the pooled regression procedure to test their arguments during the period between 2009 and 2018.

Findings

The results show that advertising expenditures of firms operating in sectors with relatively high competition are more valuable than advertising expenditures of firms operating in sectors with relatively low competition. The results of the study are robust across various proxies of advertising expenditures and firm performance. Furthermore, the results also show that the positive impact of product market competition on the value of advertising expenditures is confined only to firms that already have lower agency problems.

Originality/value

The results of the study highlight the importance of product market competition on the value of advertising expenditure in the emerging market setting, where agency problems are supposed to be high.

Citation

Farooq, O. and Pashayev, Z. (2020), "Agency problems and the value of advertising expenditures in an emerging market: role of product market competition", Managerial Finance, Vol. 46 No. 9, pp. 1123-1143. https://doi.org/10.1108/MF-08-2019-0389