Deflator choice effects in the valuation of advertising expenditures Online publication date: Wed, 13-Oct-2010
by Syed Zulfiqar Ali Shah, Saeed Akbar
J. for Global Business Advancement (JGBA), Vol. 3, No. 4, 2010
Abstract: In recent years, there has been a growing debate whether advertising expenditures generate intangible assets. The regulatory framework (e.g. International Accounting Standard IAS 38) requires advertising expenditures to be treated as a current period expense. A number of recent studies, however, report a positive and statistically significant relationship between advertising and the market values of firms. However, the evidence on the value relevance of advertising expenditure is not unequivocal. There is some US evidence, which suggests that the choice of the deflator may be one of the factors contributing to the conflicting results reported in the relevant literature. This study examines whether the choice of deflator plays a part in establishing the role of advertising expenditures in corporate valuation for a sample of UK firms. Results indicate that the choice of deflator does not influence the positive and significant relationship for the sample of UK firms used in this study.
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