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Advertising rivalry and discretionary disclosure

Author

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  • Liang, Chuchu

Abstract

Advertising is a critical competitive tool that shapes interactions among firms in the product market. Using third-party tracked data on advertising outlet costs, I find that a nontrivial portion of public firms, even those with intense advertising activities, do not disclose advertising expenses in their financial statements, indicating significant disclosure discretion. I further use product category-level advertising data to develop a firm-specific measure of advertising rivalry. I predict and find that advertising rivalry is negatively associated with the likelihood of disclosing advertising expenses. This negative association is more pronounced when firms advertise on less trackable media outlets or have more mature products. These findings suggest that firms consider their advertising expenses proprietary and that concerns about advertising competition discourage the disclosure of advertising expenses.

Suggested Citation

  • Liang, Chuchu, 2024. "Advertising rivalry and discretionary disclosure," Journal of Accounting and Economics, Elsevier, vol. 77(1).
    • Handle: RePEc:eee:jaecon:v:77:y:2024:i:1:s0165410123000356
    DOI: 10.1016/j.jacceco.2023.101611
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    More about this item

    Keywords

    Advertising; Competition; Disclosure; Materiality; Product market; Proprietary cost;
    All these keywords.

    JEL classification:

    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • M40 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - General
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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