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Review of Industrial Organization

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01.08.2014

Foreign Entry and Firm Advertising Intensity: Evidence from China

verfasst von: Sizhong Sun

Erschienen in: Review of Industrial Organization | Ausgabe 1/2014

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Abstract

This paper investigates the determinants of advertising intensity at the firm level by focusing on the role of foreign entry. In a monopolistically competitive market with heterogeneous firms, we show that foreign entry affects the expected advertising intensity of domestic firms through its impact on the cost of resources, brand image, and productivity spillovers and its impact on firms’ exit behaviour. Then, using comprehensive firm-level data from China’s manufacturing sector between 2005 and 2007, we test this hypothesis and find that foreign entry significantly affects advertising intensity.

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Hereafter, foreign entry is synonymous with foreign direct investment (FDI) and the presence of foreign firms.

Firms are classified into the four-digit industries by their main business activities.

Note that as the dataset does not cover all firms in the manufacturing sector there may be a selection effect, a common issue facing similar studies.

Although foreign firms are defined as firms with foreign capital, over 88 per cent of them have a share of foreign capital in their total capital that is greater than 30 per cent, and over 77 per cent of them have a share higher that is greater than 50 per cent.

Note that as the value of new products is reported in monetary value in the dataset, it is comparable across industries and regions.

The correlations among explanatory variables are also low.

We thank the editor for pointing this out.

Industries with two-digit industry codes less than 25.

We thank the editor for pointing this out.

More discussions on the difference between HMT and non-HMT firms can be found in Wei and Liu (2006) and Wang et al. (2009).

The results, including those of regressions by industries, are not reported here to save space. They are, however, available upon request.

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Titel: Foreign Entry and Firm Advertising Intensity: Evidence from China
verfasst von: Sizhong Sun
Publikationsdatum: 01.08.2014
Verlag: Springer US
Erschienen in: Review of Industrial Organization / Ausgabe 1/2014
Print ISSN: 0889-938X
Elektronische ISSN: 1573-7160
DOI: https://doi.org/10.1007/s11151-014-9426-z

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