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Is advertising under‐resourced in a growth market? Intangible endogeneity and informed trading issues
Author(s) -
Hodgson Allan,
Lhaopadchan Suntharee,
Ratiu Raluca
Publication year - 2018
Publication title -
accounting and finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.645
H-Index - 49
eISSN - 1467-629X
pISSN - 0810-5391
DOI - 10.1111/acfi.12276
Subject(s) - endogeneity , insider , business , stock (firearms) , insider trading , value (mathematics) , stock market , monetary economics , economics , advertising , finance , econometrics , mechanical engineering , paleontology , horse , machine learning , political science , computer science , law , biology , engineering
We examine advertising value relevance when advertising competes against other intangibles for scarce funding in a growth market. Manufacturing firms that strategically increase advertising are rewarded—they provide a direct and indirect Granger lead to stock prices above sales and income. In service firms, stock prices and intangible budgets are independently determined—with increased expenditures beyond established (optimal) levels penalised. Insider trading, conditioned on advertising, extracts 60‐day arbitrage returns of 22.5 percent, consistent with VECM signals. Highlighted is the importance of maintaining optimum intangible budgets, observing cues from informed traders and in identifying analyst following that constrains insider rent extraction.