Is Investor Attention for Sale? The Role of Advertising in Financial Markets

Abstract

Prior research documents capital market benefits of increased investor attention to accounting disclosures and media coverage; however, little is known about how investors and markets respond to attention-grabbing events that reveal little nonpublic information. We use daily firm advertising data to test how advertisements, which are designed to attract consumers' attention, influence investors' attention and financial markets (i.e., spillover effects). Exploiting the fact that firms often advertise at weekly intervals, we use an 764 J. MADSEN AND M. NIESSNER instrumental variables approach to provide evidence that print ads, especially in business publications, trigger temporary spikes in investor attention. We further find that trading volume and quoted dollar depths increase on days with ads in a business publication. We contribute to research on how management choices influence firms' information environments, determinants and consequences of investor attention, and consequences of advertising for financial markets. JEL codes: G14; G41; M37; M41

Anticipated Earnings Announcements and the Customer-Supplier Anomaly

“…Turning to the coefficient on Earnings [0,2] , I find that Google SVI increases by 18.1% and EDGAR downloads by 35.8% and 14.2% after the firm announces earnings, substantially more than the increase before these events. Consistent with prior research, news events generate significant increases in demand for financial information (Madsen and Niessner [2016]).…”

“…Daily SVI is only available by searching within a given month and does not reflect the raw number of searches, but rather the popularity of the specific search relative to other searches during the same time period. To make these daily measures comparable across months, I also obtain weekly SVI by searching across the entire sample period and adjust the daily SVI measures using the following formula (see Madsen and Niessner [2016]):…”

“…where Demand i,t is a measure of information acquisition for customer i on day t, and Supp Earnings [a,b] is a dummy variable set to one if any of the customer's suppliers announces earnings between event days [a,b]. I use three measures of customer information acquisition: log Google SVI for the customer's ticker (Da, Engelberg, and Gao [2011], Drake, Roulstone, and Thornock [2012], Madsen and Niessner [2016]) and log of total number of daily downloads and daily 10K downloads from the SEC's EDGAR database for the customer's filings (Drake, Roulstone, and Thornock [2015], Lee, Ma, and Wang [2015]). The primary event days I consider are the three days before and after an earnings announcement (i.e., days [−3,−1] and [0,2]).…”

Do analysts cater to investor information demand?

“…A growing literature examines the implications of investor attention in financial markets. This research finds that investor attention affects asset prices (Huberman and Regev, 2001; Da et al ., 2011), trading volume (Barber and Odean, 2008; Madsen and Niessner, 2019), risk premiums (Andrei and Hasler, 2015; Boguth et al ., 2019; Fisher et al ., 2021) and returns around earnings announcements (Drake et al ., 2012; Chapman, 2018). Recent studies further show that attention influence stock price reaction to macroeconomic (Benamar et al ., 2021) and firm-level news (Andrei et al ., 2021).…”

The Effect of Investor Attention on Fraud Discovery and Value Loss in Securities Class Action Litigation

“…To elaborate, an article published on back-end pages of a newspaper provides information regarding the litigation event; it does not imply, however, that all or even some of the investors process the information regarding the litigation. Second, firms make an active effort to manage media exposure around negative corporate events (Madsen and Niessner, 2015). Hence, media coverage might be manipulated by firms and thus be unreflective of the true level of investor attention.…”