Organizational Herding in Advertising Spending Disclosures: Evidence and Mechanisms
57 Pages Posted: 17 Nov 2017 Last revised: 30 Jan 2019
Date Written: January 20, 2019
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: Suggested Citation