Product market advertising and corporate bonds

Ali Nejadmalayeri (), Ike Mathur and Manohar Singh

Journal of Corporate Finance, 2013, vol. 19, issue C, 78-94

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.

Keywords: Advertising; Visibility; Corporate bonds; Credit spreads; Liquidity (search for similar items in EconPapers)
JEL-codes: G30 G32 M37 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:19:y:2013:i:c:p:78-94

DOI: 10.1016/j.jcorpfin.2012.10.002

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