Faculty & Research -Recession-Proof Marketing? Unraveling the Impact of Advertising Efficiency on Stock Volatility

Recession-Proof Marketing? Unraveling the Impact of Advertising Efficiency on Stock Volatility

The study investigates how advertising efficiency affects stock price volatility in recession and non-recession times. The study also examines how corporate advertising efficiency is impacted during economic recessions. The findings reveal that advertising efficiency tends to decline during economic downturns. Moreover, the study demonstrates that firms with higher advertising efficiency experience more stable stock prices during normal economic conditions, but not during recessions.

Advertising can attract investor attention and impact firm stock prices (Mayer, 2021). This effect can be even more pronounced with the wide and quick impact of new technologies and online advertising. A single tweet from Elon Musk has moved the stock market on several occasions. However, research on the effect of advertising on stock prices is still in its infancy (Chemmanur & Yan, 2019). Srivastava, Shervani, and Fahey (1998) argue that advertising establishes market-based assets that help create price premiums, reduce the cost of sales, and subsequently improve cash flows and stock volatility. However, since advertising costs must be expensed in the same period, earnings can be affected, which reflects on the stock price and investor perception, particularly during recessions.

A single tweet from Elon Musk has moved the stock market on several occasions. However, research on the effect of advertising on stock prices is still in its infancy.

The primary objective of the current study is to examine the impact of advertising efficiency on stock price volatility rather than focusing solely on advertising expenditure, as companies may spend on advertising without effectively enhancing their sales. Luo & Donthu (2001) and Pergelova et al. (2010) define advertising efficiency as the ratio of firms’ advertising inputs to the related outputs. This concept can be understood as a phenomenon in which firms optimize their advertising inputs to increase sales and earnings by raising awareness among their target customers and influencing their intention to purchase (Cheong et al., 2014; Luo & Donthu, 2001; Pergelova et al., 2010). Efficient management of advertising, along with the use of appropriate outlets and technologies, can significantly enhance firms’ profitability (Kim, Kim & O’Neill, 2013; Manala-O & Atienza, 2020; Rahman et al., 2021).

Advertising in times of recession

During times of recession, companies may need to reconsider their advertising strategies. Recessions pose a risk to the survival of many firms, especially if the challenges associated with the recession are not efficiently addressed, including the management of advertising expenditure (Steenkamp & Fang, 2011; Srinivasan, Lilien & Sridhar, 2011; Cucculelli, Bettinelli & Renoldi, 2014; Rollins, Nickell & Ennis, 2014). Sharifi et al. (2019) emphasized the importance of understanding advertising tools in changing consumer behaviours. During recessions, firms are pressed. Firms, faced with the need to maintain their liquidity (Barlevy, 2005), often resort to reducing their advertising expenditure during recessions (Angulo-Ruiz et al., 2022; Deleersnyder et al., 2009).
However, it is worth noting that the impact of recessions can vary among companies, and their responses to overcome crises also differ (Jung et al., 2018). During recessions, firms are more inclined to cut their advertising expenditure as the short-term effects are not always obvious (Srinivasan et al., 2011). Interestingly, researchers in the past could not reach a consensus regarding the effectiveness of advertising expenditure during recessions (Tellis and Tellis, 2009; Srinivasan et al., 2011). For example, some studies reported that increased or continued advertising expenditure during recessions can increase firms’ revenues, reliability, and long-term sustainability (Jabbouri et al., 2023; Mitchelmore & Rowley, 2013; Paul, 2015; Rollins et al., 2014; Singh & Dev, 2015; Steenkamp & Fang, 2011), while others show that shrinking advertising expenditure does not reduce firms’ profit margins during recessions (Lamey et al., 2007; Mian et al., 2018).


Quantitative research using longitudinal data with a panel structure and Generalized Method of Moments (GMM) regression technique on US listed firms. The study also uses data envelopment analysis (DEA).

Applications and beneficiaries

The study highlights the perceptions of advertising in the eyes of investors and consumers and developed a valuable instrument for companies to evaluate advertising efficiency by considering the impact of six advertising inputs (TV, radio, magazine, newspaper, online, and outdoor advertising) on sales performance and growth.

Reference to the research

Bakr Al-Gamrh, Tareq Rasul (2024) Recession-proof marketing? Unraveling the impact of advertising efficiency on stock volatility, International Review of Financial Analysis, vol 92 103087

Consult the research paper