Advertising and Firm Performance: Some New Evidence from United Kingdom Firms

Abstract

In this paper we present new evidence on the relationship between advertising and firm performance using UK survey data. Advertising is found to be correlated with profitability for those firms operating mainly in consumer goods industries. We also adopt a new approach, which uses receivership as an unambiguous measure of firm performance, to clarify the direction of causality in the relationship. We find that, within consumer goods industries, firms who advertise are less likely to exit from the market due to receivership than those who do not advertise. The results are consistent with the hypothesis that advertising exerts a significant effect on firm performance.