Authors : Hamid Kordbacheh, Nader Mehregan and Mina Soltani Nasrabadi
Abstract: The existence of a long-run equilibrium relationship between advertising expenditures and sales revenues or profits suggests that firm’s decisions to fix advertising as a ratio of performance index (Dorfman-Steiner condition) might represent optimal behaviour. This study attempts to provide evidence for such a relationship between advertising expenditures and profit using a sample of monthly time series data in Sepah Bank over the period 2002-2008. The results show the existence of long-run equilibrium relationships between the bank profitability and advertising expenditure in the sample period. This suggests that in long-run the bank's advertising expenditure is in optimal level. The evidence also bears out the hypothesis of existence a two-way causation between advertising expenditures and profit of Sepah Bank in long-run.
Hamid Kordbacheh, Nader Mehregan and Mina Soltani Nasrabadi, 2012. The Optimal Level of Advertising and Long-Run Equilibrium Relationship Between Advertising and Profit: The Case Study of Iranian Sepah Bank. Journal of Economics Theory, 6: 116-120.