Non-linear Effects of Advertising Spending on Firm Performance: A Fixed-effects Panel Analysis of the Moderating Role of Internationalization

Abstract

This study examines how advertising spending influences firm performance and investigates whether internationalization shapes this relationship. Using fixed-effects regression, we analyze a balanced panel of 185 listed Indian manufacturing firms over the period 2006–2024. The findings indicate a non-linear, concave-down relationship between advertising spending and firm performance, suggesting diminishing returns to advertising beyond a certain level. Importantly, the results show that internationalization significantly moderates this relationship. Firms with greater international exposure benefit more from advertising at lower levels of spending; however, at higher levels, internationalization intensifies the adverse effects of excessive advertising on sales. By integrating internationalization into the advertising–performance nexus through a contingency theory perspective, this study offers new empirical evidence that firm-specific strategic context plays a crucial role in determining advertising effectiveness. The findings contribute to the literature by highlighting internationalization as a key boundary condition that explains when and how advertising spending enhances firm performance.