Duration of advertising effect: Considering franchising in the restaurant industry

How long do the effects of advertising actually last? This issue has received increased attention in the fields of marketing, accounting, and finance. However, despite the importance of advertising for firm management, research on the effective duration of advertising costs still remains in the exploratory stage. To address this research need, this study investigated how long advertising costs function to increase sales and intangible value in association with franchising in the restaurant industry. The results of this study showed that advertising expenditures had a positive short-term effect on sales growth, whereas advertising did not significantly impact sales growth in the long run. However, when advertising expenditures were considered together with franchising, the long-term interaction effect was positively significant. The results suggest that advertising has long-term positive effects on sales growth only in restaurant firms using a franchising system. This implies that advertising costs should be recognized as investment-like assets only in franchising restaurant firms. On the other hand, advertising ratio had both positive short-term and long-term effects on intangible value. In addition, once the advertising ratio was associated with franchising, the long-term interaction effect was negatively significant. More detailed explanations and implications are included in the conclusion.

► This study investigated the short- and long-term effect of advertising outlay on the sales boost and firm intangible value creation using error correction model (ECM).
► This study showed that advertising expenditures had a positive short-term effect on sales growth, whereas advertising did not significantly impact sales growth in the long run.
► However, when advertising expenditures were considered together with franchising, advertising has long-term positive effects on sales growth only in restaurant firms using a franchising system.
► In addition, advertising ratio had both positive short-term and long-term effects on intangible value, while once the advertising ratio was associated with franchising, the long-term interaction effect was negatively significant. Detailed explanations are provided in the manuscript.