Rev Ind Organ (2014) 45:79–97
Foreign Entry and Firm Advertising Intensity:
Evidence from China
Published online: 12 July 2014
© Springer Science+Business Media New York 2014
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 advertis-
ing 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
Keywords Advertising intensity · Foreign entry · FDI · China
JEL Classiﬁcation D22 · F23 · L10 · L60 · M37
Researchers have investigated ﬁrm advertising behaviour from various perspectives.
For example, Bertrand et al. (2010) explore how advertising affects demand. One strand
Electronic supplementary material The online version of this article
(doi:10.1007/s11151-014-9426-z) contains supplementary material, which is available to authorized users.
The author thanks two anonymous referees, the editor Professor Lawrence White, Dr Rabi Beg of James
Cook University, and seminar participants at James Cook University and Queensland University of
Technology for their helpful comments and suggestions. Any errors are those of the author.
S. Sun (
College of Business, Law and Governance, James Cook University,
Townsville, QLD 4811, Australia