Product market advertising and stock price crash risk

Tianjiao Zhang, Zhe Shen and Qian Sun

Pacific-Basin Finance Journal, 2022, vol. 71, issue C

Abstract: In this paper, we investigate whether and how product market advertising affects future stock price crash risk. We document robust evidence of a positive relation between intensive advertising and crash risk for a sample of Chinese non-financial firms with 12,489 firm-year observations. We find that a one-standard-deviation increase in product market advertising can lead to a 7.43–8.40% increase in future crash risk. We also find that the positive relation between product market advertising and crash risk is more pronounced for firms with a poorer information environment. Further analysis shows that intensive product market advertising affects future crash risk by diverting investor attention from bad news and fostering optimistic sentiments or bubbles.

Keywords: Product market advertising; Stock price crash risk; Mediation effect; China (search for similar items in EconPapers)
JEL-codes: G14 G32 M37 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:71:y:2022:i:c:s0927538x21001918

DOI: 10.1016/j.pacfin.2021.101684

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