Capital market impact of product marketing strategy: Evidence from the relationship between advertising expenses and cost of capital

Manohar Singh, Sheri Faircloth, Ali Nejadmalayeri

Research output: Contribution to journalArticlepeer-review

50 Scopus citations

Abstract

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.

Original languageEnglish (US)
Pages (from-to)432-444
Number of pages13
JournalJournal of the Academy of Marketing Science
Volume33
Issue number4
DOIs
StatePublished - Sep 1 2005

All Science Journal Classification (ASJC) codes

  • Business and International Management
  • Economics and Econometrics
  • Marketing

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