Targeting in advertising markets: implications for offline versus online media

We develop a model with many advertisers (products) and many advertising markets (media). Each advertiser sells to a different segment of consumers, and each medium is targeting a different audience. We characterize the competitive equilibrium in the advertising markets and evaluate the implications of targeting. An increase in targeting leads to an increase in the total number of consumer‐product matches, and hence in the social value of advertising. Yet, targeting also increases the concentration of firms advertising in each market. Surprisingly, we then find that the equilibrium price of advertisements is first increasing, then decreasing, in the targeting capacity. We trace out the implications of targeting for competing media. We distinguish offline and online media by their targeting ability: low versus high. As consumers’ relative exposure to online media increases, the revenues of offline media decrease, even though the price of advertising might increase.     

The impact of different media channels on consumers and the wastage of potential advertising opportunities through existing customer communications

The first section of this paper investigates the impact of different media channels on the consumer, including television advertising, direct mail, direct Email and SMS advertising. It reveals that existing customer communications such as bills, statements and customer service letters top the survey commanding an average 38 seconds of consumer attention time. The second half of this report looks into the wastage of existing customer communications as an advertising tool. The research indicates that £365m of potential advertising opportunity is wasted by the financial services sector each year, which is the largest wastage of the industries surveyed. The retail banking sector wastes the highest proportion, with credit card issuers coming second. Direct insurance providers fare much better, although the number of customer interactions is far fewer than with credit card issuers or banks.     

The use of advertising activities to meet earnings benchmarks: evidence from monthly data

Using a unique database of monthly media advertising spending, we examine whether managers engage in real earnings management to meet quarterly financial reporting benchmarks. We extend prior literature by (1) separately analyzing advertising activities, allowing us to explore the possibility that managers could reduce or boost advertising to meet benchmarks; (2) analyzing actual activities as opposed to inferring them from reported expenses, which are also subject to accrual choices; (3) investigating the timing, within a quarter, of altered advertising spending; and (4) examining quarterly earnings benchmarks. We find that managers, on average, reduce advertising spending to avoid losses and earnings decreases. However, we also report that firms in the late stages of their life cycle increase advertising to meet earnings benchmarks. Finally, we find some evidence that firms increase advertising in the third month of a fiscal quarter and in the fourth quarter to beat prior year’s earnings.     

Don't Believe the Hype: Local Media Slant,Local Advertising,and Firm Value

When local media report news about local companies, they use fewer negative words compared to the same media reporting about nonlocal companies. We document that one reason for this positive slant is the firms' local media advertising expenditures. Abnormal positive local media slant strongly relates to firm equity values. The effect is stronger for small firms; firms held predominantly by individual investors; and firms with illiquid or highly volatile stock, low analyst following, or high dispersion of analyst forecasts. These findings show that news content varies systematically with the characteristics and conflicts of interest of the source.     

基于内容提供商视角的传统媒体定价策略研究

随着移动互联网的发展,新媒体平台的出现和传统媒体的经营模式转型正在改变媒体市场结构。考虑传统媒体转型和新媒体内容外包,引入新媒体平台建立三方双边市场结构模型,考察竞争型市场结构中传统媒体平台的定价策略。研究发现：针对消费者和广告商进行差异性定价可以给传统媒体平台带来最佳收益,因此对消费者的低收费和补贴是合理的,并不构成非正当竞争;平台间差异化程度直接影响到其议价能力和利润水平;此外,消费者对广告的容忍程度也会影响媒体平台对广告商的定价,容忍程度越低,广告费用越高。     

Advertising,investor attention,and stock prices: Evidence from a natural experiment

I test whether advertising affects stock prices through an investor attention channel. I use corporate sponsorships of college football bowl games as a natural experiment that provides variation in advertising exposure that is unrelated to firm fundamentals. Sponsoring firms' stocks experience large increases in investor attention, abnormally high turnover, and temporary price pressure that is related to bowl games' TV‐ratings and score differentials. Retail investors are net buyers of sponsors' stocks, whereas institutional investors initially remain neutral and then start selling, ultimately driving a reversal toward fundamental values. These findings shed light on who wins/loses when advertising attracts investor attention.     

Intangible Assets and Firms' Disclosures: An Empirical Investigation

This study examines how research and development (R&38;D) and advertising expenditures affect firms' disclosures. Generally accepted accounting principles (GAAP) mandate that these expenditures be immediately expensed in financial reports, despite the fact that they often benefit the firm for longer periods. Prior studies find, however, that investors consider intangible assets in their valuation of firms. These studies argue that current GAAP, by not recognizing the value generated by these assets, severely impairs the usefulness of accounting reports. I investigate if firms with higher levels of R&38;D and advertising expenditures place greater reliance on voluntary, and therefore more flexible, disclosures such as voluntary publications and investor relations. Using analysts' ratings of firms' disclosures, I find that firms with higher levels of intangible assets are more likely to receive significantly higher ratings for their investor relations programs or voluntary publications than for their annual reports. These findings suggest that firms with higher levels of intangible assets emphasize supplemental disclosures because mandated accounting disclosures inadequately present their financial performance. These results have important policy implications for regulators and investors since they indicate that voluntary disclosures, which are unregulated and unaudited, are an important means of disclosure for these firms.     

Targeted advertising and advertising avoidance

I examine how the increasing ability of firms to target their ads influences market outcomes when consumers have access to advertising‐avoidance tools. Although firms generally benefit from improved targeting, consumers need not. I also show that there may be too little blocking of ads in equilibrium and consider the role of targeted advertising when niche firms compete against mass‐market firms.     

WSJ Category Kings – The impact of media attention on consumer and mutual fund investment decisions

We exploit a novel natural experiment to establish a causal relation between media attention and consumer investment behavior, independent of the conveyed information. Our findings indicate a 31% local average increase in quarterly capital flows into mutual funds mentioned in a prominent Wall Street Journal “Category Kings” ranking list, compared to those funds which just missed making the list. This flow increase is about seven times larger than extra flows due to the well-documented performance-flow relation. Other funds in the same fund complex receive substantial extra flows as well, especially in smaller complexes. There is no increase in flows when the Wall Street Journal publishes similar lists absent the prominence of the Category Kings labeling. We show mutual fund managers react to the incentive created by the media effect in a strategic way predicted by theory, and present evidence for the existence of propagation mechanisms including increased fund complex advertising subsequent to having a Category King and increased efficacy of subsequent fund media mentions.     

Signalling and entry deterrence: a multidimensional analysis

I consider whether a privately informed incumbent can use limit pricing and upward distortions in advertising to deter profitable entry. Profitable entry is not deterred when the incumbent is privately informed only about its cost type. Profitable entry may be deterred, however, if the incumbent is privately informed about its cost type and its patience level. An equilibrium foundation is thus provided for the traditional hypothesis that limit pricing and aggressive advertising by an incumbent may deter profitable entry. At a methodological level, the article contributes by characterizing the refined equilibria of a signalling model with multiple dimensions of private information and multiple signals.     

Is Investor Attention for Sale? The Role of Advertising in Financial Markets

Prior research documents capital market benefits of increased investor attention to accounting disclosures and media coverage; however, little is known about how investors and markets respond to attention‐grabbing events that reveal little nonpublic information. We use daily firm advertising data to test how advertisements, which are designed to attract consumers' attention, influence investors' attention and financial markets (i.e., spillover effects). Exploiting the fact that firms often advertise at weekly intervals, we use an instrumental variables approach to provide evidence that print ads, especially in business publications, trigger temporary spikes in investor attention. We further find that trading volume and quoted dollar depths increase on days with ads in a business publication. We contribute to research on how management choices influence firms' information environments, determinants and consequences of investor attention, and consequences of advertising for financial markets.     

Ad spending: growing market share

If I yell louder but you yell even louder, the audience will hear you. So I shouldn't expect to be heard if I also start yelling louder, unless you become quieter. That, in essence, is the key to the relative share of voice effect in advertising. In most markets, consumer goods markets are in a state of equilibrium, where advertising expenditures are relatively stable and changes in market share are small. To gain ground in market share, a competitor has to launch a huge ad campaign for a sustained period that outspends the biggest rival by at least double.     

Ad spending: maintaining market share

Accuracy in manufacturers' advertising budgeting is hampered by reliance on the case rate system, which ties budgets to sales. A better measure is a brand's market share compared with its share of voice (the brand's share of the total value of the main media exposure in that product category). New brands are often "investing" in the market: speaking in a louder voice than their market shares would justify. Popular brands are often "profit taking"--keeping their voices low but enjoying a disproportionately large market share. The interrelationship between market share and share of voice, with either "investing" or "profit taking" the desired result, is not usually considered when determining ad budgets. But as advertisers realize how market share can respond to advertising pressure through switches in the share of voice, this method of market testing should gain in importance.     

Discussion of “The implications of unverifiable fair-value accounting: Evidence from the political economy of goodwill accounting”

Ramanna [2007. The implications of unverifiable fair-value accounting: evidence from the political economy of goodwill accounting, Journal of Accounting and Economics] provides interesting and novel evidence on how firms use contributions from their political action committees (PACs) to members of Congress as a means of lobbying for preferred positions on the two exposure drafts that led to SFAS-141 and SFAS-142. My discussion raises some concerns about his main conclusion: that pooling firms lobbied the FASB to obtain a “fair-value”-based impairment rule to facilitate their ability to manipulate financial statements. I offer a more benign explanation and make some other observations about how this line of research could proceed in the future.     

Selective Publicity and Stock Prices

I examine how media coverage of good and bad corporate news affects stock prices, by studying the effect of investor relations (IR) firms. I find that IR firms “spin” their clients' news, generating more media coverage of positive press releases than negative press releases. This spin increases announcement returns. Around earnings announcements, however, IR firms cannot spin the news and their clients' returns are significantly lower. This pattern is consistent with positive media coverage increasing investor expectations, creating disappointment around hard information. Using reporter connections and geographical links, I argue that IR firms causally affect both media coverage and returns.     

The effects of advertising and solicitation on audit fees

Leading academic and professional accountants have suggested that the crisis in auditing over the past few years may have had its origin in deregulation which allowed firms to advertise their services and solicit new clients, encouraging accounting firms to become more commercial. In this paper, we look at this issue in New Zealand which has the unique distinction of having separated two key forms of deregulation, namely advertising and solicitation, by 6 years. This allows us to separately examine the effect of each form of market competition on audit fees. We find that advertising is associated with increases in fees, not decreases, which suggests that quality-based advertising took place, and not price-based advertising. In contrast, solicitation corresponded with a general decrease in average fees for clients of the Big 8. We interpret this result as indicating an increase in competition among accounting firms. Our results suggest that there may be a much more complex relationship among market competition, advertising and solicitation, and fees than the arguments used to originally justify deregulation.     

Push‐me pull‐you: comparative advertising in the OTC analgesics industry

We derive equilibrium incentives to use comparative advertising that pushes up own brand perception and pulls down the brand image of targeted rivals. Data on content and spending for all TV advertisements in Over‐The‐ Counter (OTC) analgesics enable us to construct matrices of rival targeting expenditures and estimate the structural model. Using brands' optimal choices, these attack matrices identify diversion ratios, from which we derive comparative advertising damage measures. We find that comparative advertising causes more damage to the targeted rival than benefit to the advertiser. We simulate banning comparative advertising to find industry profits rise.     

Investor-legislators: Tax holiday for politically connected firms

In this paper, we examine whether political connections in the U.S. Congress affect voting patterns with respect to the American Jobs Creation Act of 2004 (AJCA). Using the financial disclosure statements of members of the U.S. Congress, we define political connections as equity-based ties between lawmakers and business groups, which capture the deliberate decision of lawmakers to establish a relationship by investing personal wealth in firm equity. We first examine whether politicians are more likely to hold equity in firms receiving benefits under the AJCA (i.e., firms with high repatriation tax costs). Our results suggest that politicians are more likely to hold equity positions in firms with high repatriation tax benefits only when such firms donate to their political campaign. We further examine how equity-based connections affect the AJCA voting outcomes and find that members of the House, but not of the Senate, holding repatriating firm's equity are more likely to vote in favour of the AJCA when PAC donations support their election campaigns. Last, we investigate whether politicians with equity holdings in repatriating firms are more likely to receive larger donations from firm-affiliated PACs before the AJCA vote in Congress. We find that PACs have larger contributions to House members who purchase equity in repatriating firms immediately prior to the AJCA vote. The results suggest that PACs of repatriating firms strategically target House representatives to increase political support for the tax holiday.     

The Challenge for Public Accounts Committees in Evaluating Public-Private Partnerships

This paper examines the role PACs should play in reviewing one of the newer forms of public-sector management, the public-private partnership (PPP), and provides guidance on the critical questions PACs need to investigate if they are to ensure PPPs are fully accountable for their performance to the parliament and the taxpayer.     

Product market advertising and corporate bonds

Research shows that by enhancing visibility, advertising improves stock liquidity and returns. Unlike stock holders, bond holders may view advertising skeptically. Without proven effectiveness in improving revenues, large pre-interest advertising expenditures can be seen as eroding a firm's ability to meet its debt service obligations. We find that although greater advertising by a firm improves liquidity of its bonds in the market, it does not lower the firm's cost of debt. However, firms with ineffective advertising experience reduced bond market liquidity and a higher cost of debt. Without a real positive economic impact, advertising has little or no value for bond investors.