Asymmetric Impact of Advertising revenues on Consumer Behavior: A Bivariate Approach

James T. Strong, Gokce Soydemir and Panagiotis Petratos

Central European Business Review, 2019, vol. 2019, issue 2, 1-14

Abstract: There is very little research in the extant literature on the asymmetry that may exist in consumers reactions to changes in the aggregate level of advertising in the marketplace. Aggregate levels of advertising act as a signal to consumers regarding the health of the economy. In this study, we investigate the extent of this asymmetry in terms of how consumer confidence, which is a proxy for future consumer spending, responds to upturns and downturns in advertising revenues. We find that consumers react with higher levels of confidence to upturns in advertising revenues. However, consumers do not react to downturns in advertising revenue with commensurate reductions in consumer confidence. They ignore the signaling effects of a downturn in advertising revenues, displaying asymmetric behavior in response to changes in advertising revenue. The increase in consumer confidence resulting from an increase in advertising revenue is a delayed response effect and comes after two quarters lag. It is statistically significant at conventional levels for the following two quarters as a response to a one-time upturn in advertising revenues. The results provide important information to practitioners and researchers on the asymmetric signaling and ratchet effects of advertising on consumer behavior. The implication for practitioners and policy makers is that aggregate increases in advertising has a delayed positive effect on consumer confidence with positive implications for consumer spending. The implications for researchers is another example of asymmetry in human decision-making and specifically the tendency to embrace positive and ignore negative economic signals. The implication for investors is a better understanding of how macro advertising expenditures function as a leading indicator for consumer confidence, consumer spending, and economic growth.

Keywords: asymmetric impact; advertising; consumer behavior (search for similar items in EconPapers)
JEL-codes: M37 (search for similar items in EconPapers)
Date: 2019
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DOI: 10.18267/j.cebr.212

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