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Product market advertising and corporate bonds

  • Nejadmalayeri, Ali
  • Mathur, Ike
  • Singh, Manohar
Registered author(s):

    Research 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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    File URL: http://www.sciencedirect.com/science/article/pii/S0929119912001010
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    Article provided by Elsevier in its journal Journal of Corporate Finance.

    Volume (Year): 19 (2013)
    Issue (Month): C ()
    Pages: 78-94

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    Handle: RePEc:eee:corfin:v:19:y:2013:i:c:p:78-94
    Contact details of provider: Web page: http://www.elsevier.com/locate/jcorpfin

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