The Black Box of Advertising Investments: Assessing the role of risk assessment

Advertising has become an increasingly strategic activity over the last decades and for most companies, even the smaller ones, the advertising is an indispensable asset fully integrated into their business models. Here we discuss some peculiar aspects of this asset focusing on the following contradiction: despite advertising being one of the main investment items for many companies, its risk profile is often ignored. Evidence of such a contradiction rises from economic literature and from a quantitative analysis of the advertising budget allocation in some Italian companies. Such evidence suggests that advertising is perceived as a sunk cost and does not appear to be classified as an investment with a specific risk profile. Under this light, we finally address how new risk management practices and regulator policies are needed to help the development of an efficient and fair advertising market to contribute to global financial stability.