RoyaltyStat Blog

The Cumulative Advertising Effects on Sales

Posted by Ednaldo Silva

I wanna rock your soul. Van Morrison (1970), “Into the Mystic”

A legal strategy in transfer pricing is to dismember the controlled distributors or retailers of integral management or purchase functions to report reduced profit margins.

This legal fiction (no comparable third-party) is made more incongruous by booking a large fraction of the corporate group’s advertising expenses as the tax deductions of the stripped distributors or retailers.

Also, operating loss enterprises are selected as supposed comparables to the forced-invalid distributors.

Triple crown winners are rare.

Here, I test the effect of advertising on enterprise-level sales (revenue) and show that marketing intangible producing activities such as advertising expenses cannot coexist with the legal concept of limited function distributor or retailer.

Hereafter, my exegesis is focused on a group of large US retailers.