DP5461 The Role of Advertising in Commercial Banking

Author(s): Evren Örs
Publication Date: January 2006
Keyword(s): depository institutions, market structure, non-price competition
JEL(s): D40, G21, M37
Programme Areas: Financial Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=5461

I use a new Call Reports data item to revisit the role of advertising in US commercial banking. I examine how banks' advertising varies with the deposit market structure and whether bank profitability is influenced by advertising. My analysis addresses the endogeneity of market structure and advertising variables using instrumental variables. I find that banks advertise more with increasing market concentration, whereas banks with larger market shares and size advertise less. I also find that advertising has a positive and economically significant impact on bank profitability. These results suggest that advertising is an important aspect of bank competition.