Analysis of the relationship between banks' financial performances and advertising activities in Turkey (An empirical application)

Many different disciplines exist which examine the effect of advertising on banks' financial performance. From a financial perspective, there are many issues that need to be solved in order to determine the effect of advertising on banks' profitability. These problems generally arise in the form of accessibility of advertising data, incomplete observations, disruptions in the statistical analysis due to obtained data and different findings when the same subject is considered with different methodological approaches. In order to overcome this uncertainty, the effect of advertising activities on the financial performance of the 20 banks operating in Turkey was discussed by the financial perspective in this study. In the scope of the study, a panel data set consisting of 65 observations from the fourth quarter of 2002 to the fourth quarter of 2018 was used. In the process of examining the effect of advertising on banks, fixed effects panel regression model was preferred and in order to increase clarity, the advertising variable was included in the analysis as two different ratio variables as advertising expenditures and advertising intensity. The presence of heteroscedacity, autocorrelation and inter-unit correlation, which are frequently encountered in advertising data, was also determined in this study, thus fixed effects panel regression model with Driscoll Kraay fixed effects resistive estimator has become the methodological approach of the application. Assuming that the advertisement as much affects the net profit as other profit/loss and income/expense items stated into the income statements of the banks, alternative solutions have been tried to be developed for traditional Return on Assets (ROA) and Return on Equity (ROE) financial performance measurement ratios. According to findings, it was determined that the advertisement had a negative effect on the current profitability and continued to have a negative effect for ten periods (two and a half years). Supportive findings of the hypothesis were obtained that advertising affects banks' profitability through various financial activities. The original contribution of the study: • The effect of the advertising on the current period profitability of banks is negative. • The effect of advertising on banks' profitability is lagged and the lag duration is longer than the observation period (two and a half years) in the scope of the study. • The short-term effect of advertising on profitability is negative and the long-term effect has not been detected. • It has been observed that the direction of effect of mediator variables that affect profitability was changed from positive to negative (or negative to positive) with the presence of advertising.