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Attracting Investor Attention through Advertising

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  • Dong Lou

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.

Suggested Citation

  • Dong Lou, 2009. "Attracting Investor Attention through Advertising," FMG Discussion Papers dp644, Financial Markets Group.
  • Handle: RePEc:fmg:fmgdps:dp644
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    File URL: http://www.lse.ac.uk/fmg/workingPapers/discussionPapers/fmgdps/DP644PWC8.pdf
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    Cited by:

    1. Rongsheng Shi & Zhi Xu & Zhengrong Chen & Jing Huang, 2012. "Does attention affect individual investors' investment return?," China Finance Review International, Emerald Group Publishing, vol. 2(2), pages 143-162, April.

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