Product market advertising and corporate bonds

Ali Nejadmalayeri, Ike Mathur, Manohar Singh

Research output: Contribution to journalArticle

5 Scopus citations

Abstract

Research shows that by enhancing visibility, advertising improves stock liquidity and returns. Unlike stock holders, bond holders may view advertising skeptically. Without proven effectiveness in improving revenues, large pre-interest advertising expenditures can be seen as eroding a firm's ability to meet its debt service obligations. We find that although greater advertising by a firm improves liquidity of its bonds in the market, it does not lower the firm's cost of debt. However, firms with ineffective advertising experience reduced bond market liquidity and a higher cost of debt. Without a real positive economic impact, advertising has little or no value for bond investors.

Original languageEnglish (US)
Pages (from-to)78-94
Number of pages17
JournalJournal of Corporate Finance
Volume19
Issue number1
DOIs
StatePublished - Feb 1 2013

All Science Journal Classification (ASJC) codes

  • Business and International Management
  • Finance
  • Economics and Econometrics
  • Strategy and Management

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