تبلیغات بازار محصولات و مسائل مربوط به سهام جدید

We analyze the interaction between a firm's product market advertising and its corporate financing decisions. We consider a firm that faces asymmetric information in both the product and financial markets and that needs to raise external financing to fund its growth opportunity (new project). Any product market advertising undertaken by the firm is visible to the financial market as well. In equilibrium, the firm uses a combination of product market advertising, equity underpricing, and underfinancing (raising a smaller amount of external capital than the full information optimum) to convey its true product quality and the intrinsic value of its projects to consumers and investors. The following two predictions arise from our theoretical analysis for the relation between product market advertising and equity underpricing around new equity issues. First, firms choose a higher level of product market advertising when they are planning to issue new equity, compared with situations in which they have no immediate plans to do so. Second, product market advertising and equity underpricing are substitutes for a firm issuing new equity. We empirically test the above two predictions and find supporting evidence in the context of firms making initial public offerings and seasoned equity offerings.

The role of the underpricing of initial public offerings (IPOs) in signaling firm insiders’ private information to the equity market has been extensively analyzed (see, e.g., Allen and Faulhaber, 1989; or Welch, 1989). However, recently, some authors have questioned whether underpricing is the most efficient way to signal firm value, and they have raised the possibility that it could be more efficient for firms to use other signals around new equity issues. For example, Ritter and Welch (2002) comment in their review of the IPO literature: “On theoretical grounds, however, it is unclear why underpricing is a more efficient signal than, say, advertising.” Advertising is a particularly interesting signaling alternative to underpricing, because some anecdotal evidence exists that, in practice, some managers could attempt to convey their firm's intrinsic value to the financial market by making use of product market advertising (particularly in the context of an upcoming IPO). Consider, for example, this quote (Wall Street Journal, 1999): “As they plaster ads everywhere consumers might turn, companies are hoping to catch investors’ eyes too. Businesses are often as interested in selling stock as in selling products; a high voltage advertising spree could serve as a critical prelude to an initial public offering.” Another article (Boston Globe, 2000) deals with television advertising during the Super Bowl: “Hoping to impress Wall Street as well as fans, advertisers with names such as Pets.com, Lifeminders.com, and Ourbeginning.com will pony up at least $2.2 million for each 30 second slot on next Sunday's football game. Skip Pile, of Pile and Co., a Boston firm that helps companies hire ad agencies, offers the following appraisal: ‘A Super Bowl ad can legitimize a brand among multiple constituencies: the company's employees, venture capitalists, the investment community, and lastly, the target audience of football fans.’” Whether these and similar anecdotes reflect the special situation, during a special time period, of only a few companies (e.g., Internet firms going public during the bubble period), or whether they reflect the general situation of firms making equity issues (either an IPO or a seasoned equity offering (SEO)), is an empirical question that has been unanswered so far in the literature.

Practitioners note that firms tend to increase their product market advertising prior to an IPO or a seasoned equity issue. In this paper, we present a theory of the interaction between a firm's product market advertising and its corporate financing decisions in this context. We consider a firm that faces asymmetric information in both the product and the financial markets (about the quality of its products and the intrinsic value of its projects) and that needs to raise external financing to fund its growth opportunity (new project). Any product market advertising undertaken by the firm is visible in the financial market as well. In equilibrium, the firm uses a combination of product market advertising, equity underpricing, and underfinancing (raising a smaller amount of external capital than the full information optimum) to convey its true product quality and the intrinsic value of its projects to consumers and investors. Our theoretical analysis generates two sets of testable predictions for firms making new equity issues. First, firms choose a higher level of product market advertising when they are planning to issue new equity, compared with situations in which they have no such plan to make an equity issue. Second, product market advertising and equity underpricing are substitutes for a firm going public. We test the above two predictions of our theoretical analysis on two samples of firms making IPOs and SEOs, respectively. The empirical evidence supports these predictions. First, firms increase their product market advertising in their IPO years or SEO years relative to non-IPO and non-SEO years when they have no plan to issue new equity. In other words, in the five year span around the equity issue year (from two years before the equity issue to two years after), the peak advertising level is reached in the equity issue year. We also find that IPO firms and SEO firms experience a greater increase in their advertising expenditures in the IPO year or the SEO year, compared with their matching firms. Second, the extent of underpricing is smaller as the level of product market advertising is greater, both for IPO and SEO firms. In other words, firms make use of product market advertising and equity underpricing as substitutes in signaling to the financial market around a new equity issue.