Advertising and the impact on stock price accuracy

This paper examines how advertising impacts the information environment in which stocks are priced and whether it serves to benefit or obfuscate the stock pricing environment. We find that advertising leads to stock prices which better anticipate future earnings, suggesting that the information cont...

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Bibliographic Details
Published in:The Journal of corporate accounting & finance 2021-04, Vol.32 (2), p.90-101
Main Authors: Hyman, Michael, Jayamohan, Parvathi, Watts, Omar
Format: Article
Language:English
Subjects:
Advertising
price informativeness
prices to earnings
Stock prices
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Summary:This paper examines how advertising impacts the information environment in which stocks are priced and whether it serves to benefit or obfuscate the stock pricing environment. We find that advertising leads to stock prices which better anticipate future earnings, suggesting that the information contained within marketing campaigns is price relevant despite its potential for puffery. We find that this result is concentrated in firms with greater information availability as proxied by size and analyst coverage, more sophisticated investors, and periods of low investor sentiment. Altogether, we find as the information environment is richer and investors are more capable of utilizing financial information to invest, advertising becomes a more useful tool in anticipating future operating performance and creating accurate stock prices.
ISSN:1044-8136
1097-0053
DOI:10.1002/jcaf.22488