Two essays on corporate advertising expenditures
Loading...
Authors
Sharpe, Stacey-ann K.
Issue Date
2015-08
Type
Electronic thesis
Thesis
Thesis
Language
ENG
Keywords
Management
Alternative Title
Abstract
In my second study, I examine whether firms adjust advertising expenditures around accounting based brand scandal events such as financial reporting fraud. Our analysis is guided by opposing propositions presented in the brand scandal and marketing-finance literatures regarding firm response to adverse events (i.e. brand scandals). While, recent findings from the marketing-finance literature show that managers tend to reduce advertising when anticipating the release of negative information, this response is contrary to the established support and recommendation from the extant brand scandal literature. This inconsistency suggests that firms treat product-based brand scandal events different from accounting-based brand scandal events—suggesting that managers anticipate investors’ response to advertising around brand scandal to be different from that of a consumer. In my analysis, I use a sample of firms which have committed financial reporting fraud between 1977 and 2010 to examine advertising spending strategy around fraudulent restatement announcements and the implications of this spending for firm value. The results of this analysis indicate that on average, compared to all other years, annual advertising expenditures are significantly reduced in the year a fraudulent restatement is announced. Additionally, I find that as a result the effect of advertising in the year before, during, and after the restatement announcement is shown to be insignificant. Overall, I document the relevance of advertising expenditures to firm’s reputation management strategies around financial reporting fraud announcements.
Description
August 2015
School of Management
School of Management
Full Citation
Publisher
Rensselaer Polytechnic Institute, Troy, NY