Abstract

The study examines the relationship between advertising expenses and internal cash flow using 8,346 sample
companies listed on the Korean stock markets over the period from 1999 to 2008. For the precise test, the study
further partitions the total samples into two or four portfolios based on stock markets, firm size, and the
magnitude of advertising intensity (advertising expense/total sales).
The main findings of this study are twofold; First, internal cash flow is significantly associated with advertising
expenses in subgroups such as high advertising firms and firms listed in KRX. This result suggests that internal
cash flow may be one of the core sources of advertising expenses. Second, the relation degree of internal cash
flow and advertising expenses is mainly depending on the magnitude of advertising expense intensity. It shows
more significantly positive relationship for firms with higher advertising expenses intensity than for firms with
lowers.
The important contribution of this paper is exploring the sources of advertising investment in listed Korean stock
market and this study is one of limited number of studies that investigates the main source of advertising expense
in Korean stock markets.

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