Publication Type

Journal Article

Version

acceptedVersion

Publication Date

5-2023

Abstract

Publicly listed firms have the discretion to disclose (or not) advertising spending in their annual (10-K) reports. The disclosure of advertising spending can provide valuable information because advertising is a leading indicator of future performance. However, estimates of advertising spending are available from data providers, arguably mitigating the need for its formal disclosure. This study argues that firms’ disclosure of advertising spending provides more complete and public information and therefore lowers investor uncertainty about future firm performance (idiosyncratic risk). Empirical analyses show this effect is largely driven by the negative effect of disclosure of advertising spending on analyst uncertainty. Consistent with agency theory, the negative effect of the disclosure of advertising spending on analyst uncertainty is stronger for firms with more financial resources, lower disclosure quality, and that are in more competitive industries. Additional analyses show that the disclosure of advertising spending has a significant positive effect on firm value in specific sectors. These results, therefore, identify an avenue for Chief Marketing Officers to play a greater role in managing investor relations. In addition, they suggest strong merit for the Securities and Exchange Commission and the Financial Accounting Standards Board to reconsider current regulations governing advertising spending disclosure.

Keywords

Disclosure, advertising spending disclosure, advertising, marketing information, marketing-finance interface

Discipline

Advertising and Promotion Management | Corporate Finance | Marketing

Research Areas

Marketing

Publication

Journal of Marketing

Volume

87

Issue

3

First Page

359

Last Page

382

ISSN

0022-2429

Identifier

10.1177/00222429221123013

Publisher

SAGE Publications (UK and US)

Copyright Owner and License

Authors

Additional URL

https://doi.org/10.1177/00222429221123013

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