Capital Market Impact of Product Marketing Strategy: Evidence From the Relationship Between Advertising Expenses and Cost of Capital

To analyze the prospect of a firm's advertising decision affecting shareholder wealth, this article investigates the relationship between a firm's advertising expenditure and the market-imposed weighted average cost of capital. For a sample of U.S. firms, the results show that advertising...

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Bibliographic Details
Published inJournal of the Academy of Marketing Science Vol. 33; no. 4; pp. 432 - 444
Main Authors Singh, Manohar, Faircloth, Sheri, Nejadmalayeri, Ali
Format Journal Article
LanguageEnglish
Published New York Springer Nature B.V 01.10.2005
Subjects
Advertising
Advertising expenditures
Brand equity
Brand loyalty
Capital markets
Capital structure
Cash flow forecasting
Cost of capital
Customer satisfaction
Impact analysis
Investments
Market shares
Market strategy
Marketing
Multivariate analysis
Product development
Standard scores
Stock exchanges
Stock prices
Stockholders
Studies
Value added
United States > US
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Summary:To analyze the prospect of a firm's advertising decision affecting shareholder wealth, this article investigates the relationship between a firm's advertising expenditure and the market-imposed weighted average cost of capital. For a sample of U.S. firms, the results show that advertising expenditure is negatively related to the cost of equity and positively related to debt utilization, resulting in a lower weighted average cost of capital. A higher debt level, however, associates with a lower level of financial strength. In addition, and plausibly by lowering the cost of capital through product market advertising, firms with higher advertising expenditure experience higher performance in terms of market value added. [PUBLICATION ABSTRACT]
ISSN:0092-0703
1552-7824
DOI:10.1177/0092070305277380