The spillover effect of advertising on the capital market: Evidence from financial constraints111 Fuxiu Jiang acknowledges the financial support from the China National Natural Science Foundation (Nos. 72272144). Yanyan Shen acknowledges the financial support from the Innovation Centre for Digital Business and Capital Development of Beijing Technology and Business University (Nos. SZSK202305) and National Social Science Fund of China (Nos. 23FYB052). Xiaoxue Xia acknowledges the financial support from the China National Natural Science Foundation (Nos. 72202018) and the China Postdoctoral Science Foundation (Nos. 2022M720496). All errors are ours

Fuxiu Jiang, Yanyan Shen and Xiaoxue Xia

Journal of Corporate Finance, 2024, vol. 84, issue C

Abstract: Firms are embedded in the product market as well as the capital market. Their behavior in the product market will inevitably affect their performance in the capital market, and vice versa. Using a sample of Chinese listed firms, we empirically test the existence of spillover effect of advertising on financial constraints in the capital market. We find that product market advertising significantly alleviates the firm's financial constraints, especially when the information asymmetry between insiders and outsiders is more serious and when the firm is in a consumer-product industry. We also find that advertising improves brand value, increases attention, and alleviates peer firms' financial constraints, providing supplementary evidence that one alleviation mechanism is information asymmetry. Further analyses show that advertising significantly reduces the firm's financing costs. These findings provide valuable insights into how firms alleviate financial constraints.

Keywords: Advertising; Financial constraints; Information asymmetry; Product market; Capital market (search for similar items in EconPapers)
JEL-codes: G10 G30 M37 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:84:y:2024:i:c:s0929119923001785

DOI: 10.1016/j.jcorpfin.2023.102529

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