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Attracting investor attention through advertising

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  • Dong Lou
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    Abstract

    This paper provides empirical evidence that managers adjust firm advertising expenditures to influence investor behavior and short-term stock prices. First, this paper shows that increased advertising spending is associated with individual investor buying and a contemporaneous rise in abnormal stock returns, which is then reversed in subsequent years. Second, there is a significant rise in firm advertising expenditures prior to insider sales and seasoned equity offerings. This large increase is followed by a significant decrease in advertising expenditures in the subsequent year. This pattern of advertising expenditures is consistent with the idea that managers are exploiting the return effect induced by advertising to the benefit of the existing shareholders and/or themselves.

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    File URL: http://eprints.lse.ac.uk/29311/
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    Bibliographic Info

    Paper provided by London School of Economics and Political Science, LSE Library in its series LSE Research Online Documents on Economics with number 29311.

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    Length: 47 pages
    Date of creation: 2009
    Date of revision:
    Handle: RePEc:ehl:lserod:29311

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