How does advertisement spending affect business performance of both islamic and conventional banks?

Roslan, Ahmad Ridza and Masih, Mansur (2017): How does advertisement spending affect business performance of both islamic and conventional banks?

Abstract

The study aims at exploring the influence of the advertising on performance of the banks operating in Malaysia and if there is any difference in such relation by the type of banks such as, Islamic or Conventional. An ARDL analysis has been done on two Banks in Malaysia to find out whether there is any relationship between banks performance and marketing expenditure of Islamic Bank and Conventional bank. The informative view of advertising suggests that advertising has a pro-competitive role. Comanor and Wilson (1967, 1974) provide alternative tests of the informative view by regressing profitability on advertising intensity and other variables and posits that advertising causes profitability. Using the annual data of the bank enlisted in the Bursa Malaysia, this study takes an ARDL approach to test Comanor-Wilson hypothesis in reduced form. The findings tend to indicate that the performance of Public Islamic Bank standing as a proxy for Islamic bank in Malaysia, in the long-run and in the short run is not impacted by its marketing intensity. Further study should be done, on what basis is the bank still spending its advertising budget (Marketing)? This contradicts Comanor and Wilson’s informative view that the advertising intensity and other variables cause profitability.

• Item Type: MPRA Paper
• Language: English
• Keywords: Islamic and commercial banking, advertising, ARDL, Malaysia
• Subjects: C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C22 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes; C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C58 - Financial Econometrics; E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E44 - Financial Markets and the Macroeconomy

References

Ariss, R. T. (2010). Competitive conditions in Islamic and conventional banking: A global perspective. Review of Financial Economics, 19(3), 101-108.

Bain, J.(1956), Barriers to New Competition. Cambridge: Harvard University Press.

Becker, G. S. and Murphy, K. M. (1993) A Simple Theory of Advertising as a Good or Bad. Quarterly Journal of Economics, 108, 942-964.

bin Mahajar, A. J., and Yunus, J. B. M. (2011). The effectiveness of the promotional tools in creating awareness toward customers of Islamic banking in Malaysia. Problems and Perspectives in Management, 9(1), 32-38.

Braithwaite, D. (1928). The Economic Effects of Advertisement. Economic Journal, 38 (3),16-37.

Comanor, W. S. and Wilson, T. A. (1967). Advertising, Market Structure, and Performance. The Review of Economics and Statistics, 49, 423-440.

Comanor, W. S. and Wilson, T. A. (1974). Advertising and Market Power. Cambridge, MA: Harvard University Press.

Demsetz, H. (1973). Industry Structure, Market Rivalry, and Public Policy. Journal of Law and Economics, 16, 1-9.

Edwards, F. R. (1973). Advertising and Competition in Banking. The Antitrust Bulletin 18, 23-31

Fisher, F. M. and McGowan, J. J. (1979). Advertising and Welfare: Comment. The Bell Journal of Economics, 10, 726-727.

Haron, S. and Wan Azmi, W.N. (2005). Marketing strategy of Islamic banks: a lesson from Malaysia. International Seminar on Enhancing Competitive Advantage on Islamic Financial Institutions, Jakarta, 7-8 May, In Kamarulzaman, Y.and Madun, A. (2013). Marketing Islamic banking products: Malaysian perspective. Business Strategy Series, 14(2/3), 60-66.

Hochman, O. and Luski, I. (1988). Advertising and Economic Welfare: Comment. American Economic Review 78, 290-296. . Kaldor, N. V. (1950) The Economic Aspects of Advertising. Review of Economic Studies 18, 1-27.

Kamarulzaman, Y.and Madun, A. (2013). Marketing Islamic banking products: Malaysian perspective. Business Strategy Series, 14(2/3), 60-66.

Kohers, T. and Simpson, W. G. (1981), Concentration and Advertising in the United States Savings and Loan Industry, Applied Economics, 13, 79-88.

Marshall, A. (1890). Principles of Economics. London: MacMillan and Co.

Marshall, A. (1919). Industry and Trade: A Study of Industrial Technique and Business Organization; and Their Influences on the Conditions of Various Classes and Nations. London: MacMillan and Co.

Mirakhor, A. and Smolo, E. (2014). Epistemological Foundation of Finance: Islamic and Conventional. Islamic Banking and Finance Review, 1(1), 1-24

Nelson, P. (1974). Advertising as Information. Journal of Political Economy, 82, 729-753.

Nelson, P. (1975). The Economic Consequences of Advertising. Journal of Business, 48, 213-241

Ozga, S. A. (1960). Imperfect Markets Through Lack of Knowledge. Quarterly Journal of Economics 74, 29-52.

Pigou, A. C. (1924). Economics of Welfare. London: MacMillan and Co., 2nd edition

Rhoades, S. A. (1980). Monopoly and Expense Preference Behavior: An Empirical Investigation of Behavioralist Hypothesis, Southern Economic Journal, 47, 419-432.

Robinson, J. (1933). Economics of Imperfect Competition. London: MacMillan and Co.

Scott, J. T. (1978). Non-price Competition in Banking Markets. Southern Economic Journal, 45, 594-605

Stigler, G. J. (1961). The Economics of Information. Journal of Political Economy, 69, 213-225.

Stigler, G. J. and Becker, G. S. (1961). De Gustibus Non Est Disputandum, American Economic Review, 67, 213-235.

Wolken, J. D. and Derrick, F. W. (1986). Advertising, Market Power and Non-Price Competition: Evidence from Commercial Banking. Working paper number 86-4, Board of Governors of the Federal Reserve System, April.