Product market advertising and corporate bonds
AbstractResearch shows that by enhancing visibility, advertising improves stock liquidity and returns. Unlike stock holders, bond holders may view advertising skeptically. Without proven effectiveness in improving revenues, large pre-interest advertising expenditures can be seen as eroding a firm's ability to meet its debt service obligations. We find that although greater advertising by a firm improves liquidity of its bonds in the market, it does not lower the firm's cost of debt. However, firms with ineffective advertising experience reduced bond market liquidity and a higher cost of debt. Without a real positive economic impact, advertising has little or no value for bond investors.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Corporate Finance.
Volume (Year): 19 (2013)
Issue (Month): C ()
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Web page: http://www.elsevier.com/locate/jcorpfin
Advertising; Visibility; Corporate bonds; Credit spreads; Liquidity;
Find related papers by JEL classification:
- G30 - Financial Economics - - Corporate Finance and Governance - - - General
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
- M37 - Business Administration and Business Economics; Marketing; Accounting - - Marketing and Advertising - - - Advertising
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- Nejadmalayeri, Ali & Nishikawa, Takeshi & Rao, Ramesh P., 2013. "Sarbanes-Oxley Act and corporate credit spreads," Journal of Banking & Finance, Elsevier, vol. 37(8), pages 2991-3006.
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