Digital versus Traditional Advertising and the Recognition of Brand Intangible Assets

• In Event: Research with an Impact on Scholarship: Reporting, Valuation, and Markets

Abstract

This paper examines how different advertising medium affects the occurrence and nature of brand asset recognition. Prior research, which focuses on aggregate advertising expenditures, documents that advertising is positively associated with firm sales and brand value. However, recent years have witnessed a dramatic shift in advertising expenditures from traditional channels (such as TV and newspaper) to digital advertising (primarily paid search and online display): digital advertising is now the largest advertising expenditure, exceeding $100 billion in the US per year. I exploit this trend, using proprietary data to decompose advertising expenditures into three core component elements—traditional, online display, and paid search—and examine how key advertising medium affect subsequent brand asset recognition arising in the context of acquisitions. Consistent with expectations, I find that after being acquired, target firms’ traditional and online display advertising exhibit a higher likelihood of brand asset recognition, higher recognized brand asset values, and longer amortization schedules, as compared to paid search advertising. Overall, this paper highlights the heterogeneous effects of different advertising channels on recognition of the underlying brand asset.

Author

• Scarlett Xiaotong Song, Boston University