Digital Advertising And Company Value Implications of Reallocating Advertising Expenditures

As companies continue to shift advertising expenditures toward digital-media channels, the benefits of digital advertising (adaptability of content, more efficient consumer targeting, and higher reach per dollar) must be weighed against the opportunity cost (forgone synergy between digital and traditional advertising). Using a hand-matched proprietary dataset of 1,538 companies from 2001 to 2012, this study documents that digital share-the ratio of digital advertising to traditional advertising-has an inverted U-shaped relationship with company value. The empirical evidence presents an important implication for managers: The beneficial impact of increasing digital share becomes detrimental when the current ratio of digital to traditional advertising exceeds 15:1.