Attracting investor attention through advertising

This paper provides evidence that managers adjust firm advertising, in part, to attract investor attention and influence short-term stock returns. First, I show that increased advertising spending is associated with a contemporaneous rise in retail buying and abnormal stock returns, and is followed by lower future returns. Next, I document a significant increase in advertising spending prior to insider sales, and a significant decrease in the subsequent year. Additional analyses suggest that the inverted-V-shaped pattern in advertising spending around insider sales is most consistent with managers' opportunistically adjusting firm advertising to exploit the temporary return effect to their own benefit.