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

Capital market impact of product marketing strategy: Evidence from the relationship between... 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. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of the Academy of Marketing Science Springer Journals

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

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References (48)

Publisher
Springer Journals
Copyright
Copyright © Academy of Marketing Science 2005
Subject
Economics / Management Science; Business/Management Science, general; Marketing; Social Sciences, general
ISSN
0092-0703
eISSN
1552-7824
DOI
10.1177/0092070305277380
Publisher site
See Article on Publisher Site

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.

Journal

Journal of the Academy of Marketing ScienceSpringer Journals

Published: Sep 1, 2005

Keywords: advertising; cost of capital; capital and product markets; capital structure; performance

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