Advertising, Breadth of Ownership, and Liquidity

35 Pages Posted: 25 Mar 2002

See all articles by Gustavo Grullon

Gustavo Grullon

Rice University - Jesse H. Jones Graduate School of Business

George Kanatas

Rice University - Jesse H. Jones Graduate School of Business

James Weston

Rice University - Jesse H. Jones Graduate School of Business

Abstract

We present evidence that product market advertising has a direct effect on a firm's breadth of ownership and on the liquidity of its common stock. We find that firms that spend more on advertising, ceteris paribus, attract a significantly larger number of both individual and institutional investors. We also find that advertising reduces trading costs without adversely affecting trading activity, consistent with the idea that advertising mitigates adverse selection. These results suggest that a firm's advertising not only serves to inform potential consumers of the firm's products but also serves to increase the visibility of the firm among capital market investors.

JEL Classification: G10

Suggested Citation

Grullon, Gustavo and Kanatas, George and Weston, James Peter, Advertising, Breadth of Ownership, and Liquidity. AFA 2003 Washington, DC Meetings. Available at SSRN: https://ssrn.com/abstract=304240 or http://dx.doi.org/10.2139/ssrn.304240

Gustavo Grullon (Contact Author)

Rice University - Jesse H. Jones Graduate School of Business ( email )

P.O. Box 2932
Houston, TX 77252-2932
United States
(713) 348-6138 (Phone)
(713) 348-6331 (Fax)

HOME PAGE: http://www.ruf.rice.edu/~grullon/

George Kanatas

Rice University - Jesse H. Jones Graduate School of Business ( email )

6100 South Main Street
P.O. Box 1892
Houston, TX 77005-1892
United States
713-348-5383 (Phone)
713-348-5251 (Fax)

James Peter Weston

Rice University - Jesse H. Jones Graduate School of Business ( email )

6100 South Main Street
P.O. Box 1892
Houston, TX 77005
United States
713-348-4480 (Phone)
713-348-6331 (Fax)

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