Organizational Herding in Advertising Spending Disclosures: Evidence and Mechanisms

57 Pages Posted: 17 Nov 2017 Last revised: 30 Jan 2019

See all articles by Huanhuan Shi

Huanhuan Shi

University of Nebraska at Lincoln - Department of Marketing

Rajdeep Grewal

University of North Carolina (UNC) at Chapel Hill - Kenan-Flagler Business School

Shrihari Sridhar

Texas A&M University - Department of Marketing

Date Written: January 20, 2019

Abstract

As firms use advertising to gain product market advantages and increase their valuation in financial markets, disclosures of their advertising spending are influential—whether they erode organizational competitive advantages in product markets or signal quality in financial markets. The authors argue that firms lower their own advertising disclosure uncertainty by observing peers’ advertising disclosure and thus empirically investigate information-based organizational herding in the context of advertising spending disclosure, where a 1994 reporting rule made advertising spending disclosures voluntary in the United States. The authors examine whether a firm tends to rely on information from benchmark leaders or similar peers to resolve disclosure uncertainty. The authors use a novel identification strategy, which uses partially overlapping strategic groups, to mitigate simultaneity and correlated unobservables. Robust evidence reveals herding effects among peer firms in the same strategic group. Firms are more likely to resolve disclosure uncertainty from similar peers rather than from benchmark leaders, indicating that firms perceive similar peers as a valuable information source while facing disclosure decisions.

Keywords: advertising spending, voluntary disclosure, herding

JEL Classification: L10, M10

Suggested Citation

Shi, Huanhuan and Grewal, Rajdeep and Sridhar, Shrihari, Organizational Herding in Advertising Spending Disclosures: Evidence and Mechanisms (January 20, 2019). Mays Business School Research Paper No. 3071616; Kenan Institute of Private Enterprise Research Paper Forthcoming. Available at SSRN: https://ssrn.com/abstract=3071616 or http://dx.doi.org/10.2139/ssrn.3071616

Huanhuan Shi

University of Nebraska at Lincoln - Department of Marketing ( email )

United States

Rajdeep Grewal (Contact Author)

University of North Carolina (UNC) at Chapel Hill - Kenan-Flagler Business School ( email )

McColl Building
Chapel Hill, NC 27599-3490
United States

Shrihari Sridhar

Texas A&M University - Department of Marketing ( email )

430 Wehner
College Station, TX 77843-4218
United States

HOME PAGE: http://mays.tamu.edu/directory/shriharisridhar/

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