The impact of advertising share of voice on the idiosyncratic risk of the firm

• Main Authors: MOON, Sungkyun, TULI, Kapil R., MUKHERJEE, Anirban
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2018
• Subjects: Advertising share of voice; Signaling; Idiosyncratic risk; Accounting; Marketing-finance interface; Finance and Financial Management; Marketing
• Online Access: https://ink.library.smu.edu.sg/lkcsb_research/6230; https://ink.library.smu.edu.sg/context/lkcsb_research/article/7229/viewcontent/ASOV_Risk_02_2017.pdf
• Institution: Singapore Management University

Integrating literature in marketing, finance and accounting, this study examines the impact ofa firms’ advertising share of voice (ASOV) on investors’ uncertainty about its future financialperformance, i.e., firms’ idiosyncratic risk. Drawing on signaling theory, authors propose that ASOV serves as a signal for investors such that higher ASOV reduces idiosyncratic risk. Consistent with this argument, analysis of 2,777 publicly listed firms over a two-decade period (1995-2014) shows that ASOV has a significant negative effect on idiosyncratic risk.In addition, consistent with the argument that ASOV is a more credible signal when firmshave higher cash flows; authors find that the negative impact of ASOV on idiosyncratic riskis stronger for firms with higher cash flows. Similarly, results support arguments that ASOVis a more appropriate signal for firms that have low quality disclosures and are in industriesthat are more competitive. Taken together, this study identifies specific conditions underwhich senior managers and financial analysts can expect ASOV to be a valuable marketing instrument to lower a firms’ idiosyncratic risk.