Limited attention by lenders and small business debt financing: Advertising as attention grabber

Developing predictions by drawing upon the limited attention perspective, we investigate if small firms may use advertising as an attention grabber to increase their opportunities to access debt financing. Using a sample of over a million observations, we find that small firms with higher advertising expenditure are more likely to gain access to debt financing, thus increasing their financial leverage. Our tests show that lenders constrained by a limited attentional capacity are more likely to be attracted by small firms with higher advertising expenditure, and that small firms with financial constraints are not found to use advertisement intentionally to acquire resource.