Tarred with the Same Brush? Advertising Share of Voice and Stock Price Synchronicity

Abstract

Using the informative view of advertising as their theoretical lens, the authors propose that advertising provides information to investors in financial markets, analogous to its role for customers in product markets. The authors extend previous marketing–finance research, which has focused on how advertising affects firms’ risk and returns, and investigate a novel outcome variable, stock price synchronicity. Consistent with their proposed theory, the authors find that firms that advertise more relative to competitors have lower stock price synchronicity, implying that these firms’ stock price movements are driven more by information that is specific to the firm rather than general industry- and market-wide trends. The effect of advertising investments on stock price synchronicity is moderated by the information demand versus supply about firms in financial markets given firms’ product characteristics and ownership structure, and the likelihood of spillover effects between product and financial markets given firms’ marketing strategies. The authors illustrate the relevance of their findings for marketing managers through an event study in which they demonstrate that firms with high stock price synchronicity are “tarred with the same brush” and experience negative abnormal returns when competitors have a product recall, whereas firms with low stock price synchronicity are not affected.