Revealing Advertising Expenditures Can Be an Advantage

Revealing Advertising Expenditures Can Be an Advantage


Revealing information about themselves is something that many companies are rather nervous about, since anything made public is also given away to competitors. Yet, as a paper by Sungkyun Moon, of Bocconi’s Department of Marketing, with Kapil R. Tuli (Singapore Management University) and Anirban Mukherjee (INSEAD) for the Journal of Marketing explains, there is an advantage in disclosing advertising expenditure data.

The paper argues that advertising expenditure is a strong indicator of a company’s future performance, but since 1995 there is no legal requirement for US-listed companies to publish this particular piece of information, so many companies keep it secret. One notorious such example is Apple Inc. which stopped mentioning their advertising expenditure in 2016. But an extensive analysis conducted by the authors of 2,285 listed firms over 25 years shows that disclosure of advertising spending lowers idiosyncratic risk (that is, risk due to firm-specific factors as perceived by investors) by about 7%. Importantly, this disclosure effect is partially driven by lowering analyst uncertainty (that is, the divergence about future financial performance of the firm amongst financial analysts). There may be a potential concern that the disclosure reveals proprietary information and may have an adverse effect on firm valuation. The authors examine this argument and, for the pooled sample, they find that disclosure of advertising spending does not have a significant negative effect on firm value. In fact, they find nuanced effects of disclosure of advertising as disclosure of advertising spending helps enhance firm value in certain sectors such as Manufacturing, Business Services, Hi-Tech, and Healthcare.
In general, analysts (and, consequently, investors) value information which helps lowering the degree of uncertainty about any given company. Advertising spending is no exception, as it reflects how much a company is investing in its own brand equity. Moreover, if a company discloses this information, it saves analysts the effort of gauging it through external sources. However, as Moon says, “the disclosure of advertising spending is useful for investors and analysts because it gives a more complete picture of advertising expenses incurred by the firm even if estimates of this metric are available from data providers.”
Chief Marketing Officers, the paper concludes, can therefore become an active party in investor relations, from which they are often excluded, by demanding that advertising spending data be made public.
Sungkyun Moon, Kapil R. Tuli, and Anirban Mukherjee, “Does Disclosure of Advertising Spending Help Investors and Analysts?”, Journal of Marketing, published online August 16, 2022,

by Andrea Costa
Bocconi Knowledge newsletter


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