Maximizing Short-Term Stock Prices Through Advertising
Speaker
Abstract
| This paper provides evidence that managers sometimes adjust firm advertising spending to maximize short-term stock prices. First, this paper shows that increased advertising spending is associated with intensified individual investors' buying activities and a contemporaneous rise in abnormal stock returns, which is then reversed in subsequent years. The paper further documents a significant increase in advertising spending prior to insider sales and seasoned equity offerings, and yet a significant decrease in the following year. Using the vesting of restricted shares held by top executives as an instrument for insider sales, I show that the invested-V-shaped pattern in advertising spending around equity sales is most consistent with the interpretation that managers exploit the temporary stock return effect of advertising to the benefit of themselves (and, potentially, existing shareholders). |
| The Erasmus Finance Seminar is jointly sponsored by ERIM and the Tinbergen Institute. |
| Contact information: |
| Viorel Roscovan |
