Direct effect of advertising spending on firm value: Moderating role of financial analyst coverage

Previous research distinguishes between direct and indirect effects of advertising spending on firm value. This research focuses on the direct effect of advertising based on the spillover and signaling effect of advertising. Both effects are the result of increased public information flow about the firm created by advertising. Another source of public information flow about firms is information produced by financial analysts. We hypothesize that the direct effect of advertising on firm value will be stronger for firms not covered by financial analysts than for those that are covered because investors may rely on information flow from financial analysts for covered firms and rely on information flow from advertising in the absence of analyst coverage. Using financial and accounting databases for publicly traded firms for a period from 1975 to 2015, we test this hypothesis and find empirical evidence for the moderating role of analyst coverage in the relationship between advertising spending and firm value. (C) 2019 Elsevier B.V. All rights reserved.