Maximizing Short-Term Stock Prices through Advertising

44 Pages Posted: 18 Mar 2010 Last revised: 30 Nov 2010

See all articles by Dong Lou

Dong Lou

London School of Economics & Political Science (LSE); Centre for Economic Policy Research (CEPR)

Date Written: November 28, 2010

Abstract

This paper provides evidence that managers use firm advertising, in part, to maximize short-term stock prices. First, this paper shows that increased advertising spending is associated with individual investors' intensified buying activities, as well as a contemporaneous rise in abnormal stock returns that is subsequently reversed. The paper further documents a significant increase in advertising spending prior to insider sales and seasoned equity offerings, but 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 inverted-V-shaped pattern in advertising spending around equity sales is most consistent with managers' exploiting the temporary stock return effect of advertising to their own benefit and, potentially, to that of existing shareholders.

Keywords: advertising, catering, insider sales, equity offerings, investor attention

Suggested Citation

Lou, Dong, Maximizing Short-Term Stock Prices through Advertising (November 28, 2010). Available at SSRN: https://ssrn.com/abstract=1571947 or http://dx.doi.org/10.2139/ssrn.1571947

Dong Lou (Contact Author)

London School of Economics & Political Science (LSE) ( email )

Department of Finance
Houghton Street
London, WC2A 2AE
United Kingdom
+44 (0)207 1075360 (Phone)

HOME PAGE: http://personal.lse.ac.uk/loud/

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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