The Advertising Disclosure Choice

61 Pages Posted: 10 Jun 2021 Last revised: 22 Feb 2025

See all articles by Ofir Gefen

Ofir Gefen

National University of Singapore (NUS) - NUS Business School

Po-Hsuan Hsu

National Tsing Hua University - Department of Quantitative Finance; National University of Singapore (NUS) - Asian Bureau of Finance and Economic Research (ABFER)

Hsiao-Hui Lee

National Chengchi University (NCCU) - Department of Management Information Systems

Hunghua Pan

National Tsing Hua University - Department of Quantitative Finance; National Tsing Hua University

David M. Reeb

National University of Singapore - Dept of Accounting

Date Written: February 22, 2025

Abstract

We investigate why some firms, even those with substantial advertising activity, often do not specify these expenditures in their financial statements. Prior research suggests that this practice could maximize shareholder value by protecting proprietary information. Alternatively, managers might withhold advertising expenditures to obscure performance and manage market expectations. Using a comprehensive sample of US public firms, we find that non-specification of advertising creates significant information friction. Unspecified advertising firms face more advertising-related questions during conference calls than their disclosing peers. Yet, their managers provide limited responses to these questions. Analysts’ forecasts for unspecified advertising firms show greater forecast dispersion and more pessimistic estimates than their disclosing peers. Additional tests support the managerial protection hypothesis: CEOs early in their tenure appear more likely to withhold advertising cost details, with this effect most evident in industries characterized by frequent executive turnover. To ensure robustness, we manually collect marketing-related expenses from 10K filings not captured by Compustat’s advertising expense measure and find consistent results. Our evidence suggests that managerial career concerns appear to influence advertising disclosure choices. 

Keywords: Advertising, materiality, stock pricing, stock analyst, conference calls

JEL Classification: G30, M30, M41, L51,

Suggested Citation

Gefen, Ofir and Hsu, Po-Hsuan and Lee, Hsiao-Hui and Pan, Hunghua and Reeb, David M., The Advertising Disclosure Choice (February 22, 2025). Available at SSRN: https://ssrn.com/abstract=3863044 or http://dx.doi.org/10.2139/ssrn.3863044

Ofir Gefen

National University of Singapore (NUS) - NUS Business School ( email )

15 Kent Ridge Dr
Singapore, 129800
Singapore

Po-Hsuan Hsu (Contact Author)

National Tsing Hua University - Department of Quantitative Finance ( email )

101, Section 2, Kuang-Fu Road
Hsinchu, Taiwan 300
China

National University of Singapore (NUS) - Asian Bureau of Finance and Economic Research (ABFER) ( email )

BIZ 2 Storey 4, 04-05
1 Business Link
Singapore, 117592
Singapore

Hsiao-Hui Lee

National Chengchi University (NCCU) - Department of Management Information Systems ( email )

No. 64, Section 2, Zhǐnán Rd
Wenshan District
Taipei City
Taiwan

Hunghua Pan

National Tsing Hua University - Department of Quantitative Finance ( email )

101, Section 2, Kuang-Fu Road
Hsinchu, Taiwan 300
China
0933804873 (Phone)

National Tsing Hua University ( email )

Hsinchu
Taiwan
886933804873 (Phone)

David M. Reeb

National University of Singapore - Dept of Accounting ( email )

Mochtar Riady Building
15 Kent Ridge Drive
Singapore, 119245
Singapore

HOME PAGE: http://www.davidreeb.net

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
328
Abstract Views
1,936
Rank
198,785
PlumX Metrics