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Product market advertising and stock price crash risk

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  • Zhang, Tianjiao
  • Shen, Zhe
  • Sun, Qian

Abstract

In this paper, we investigate whether and how product market advertising affects future stock price crash risk. We document robust evidence of a positive relation between intensive advertising and crash risk for a sample of Chinese non-financial firms with 12,489 firm-year observations. We find that a one-standard-deviation increase in product market advertising can lead to a 7.43–8.40% increase in future crash risk. We also find that the positive relation between product market advertising and crash risk is more pronounced for firms with a poorer information environment. Further analysis shows that intensive product market advertising affects future crash risk by diverting investor attention from bad news and fostering optimistic sentiments or bubbles.

Suggested Citation

  • Zhang, Tianjiao & Shen, Zhe & Sun, Qian, 2022. "Product market advertising and stock price crash risk," Pacific-Basin Finance Journal, Elsevier, vol. 71(C).
    • Handle: RePEc:eee:pacfin:v:71:y:2022:i:c:s0927538x21001918
    DOI: 10.1016/j.pacfin.2021.101684
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    More about this item

    Keywords

    Product market advertising; Stock price crash risk; Mediation effect; China;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • 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; Personnel Economics - - Marketing and Advertising - - - Advertising

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