How well does advertising work on restaurant performance? A dynamic and quadratic approach

This study investigated the dynamic and quadratic relationships between advertising and restaurant performance. For this investigation, three stage least squares estimation was adopted to analyze the advertising effects of 137 U.S. public restaurant firms from 1991 to 2016. Stock value, sales, and profitability were used as measures of restaurant performance. The findings showed the quadratic effect of advertising spending on all three performance measures, indicating that advertising effects change according to the level of firms’ advertising spending. The effect of sales and profitability on advertising spending was also significant, which supports their dynamic relationships in the restaurant context. Restaurant managers are advised to plan their advertising budget by taking into account their different performance goals and changing advertising effectiveness.