Deceptive advertising and abnormal stock returns

This study examined the impact of deceptive advertising on the abnormal stock returns of firms. Using an event study analysis with 101 cases from the FTC database over the period 1987–2005, the FTC rulings on deceptive advertising were found to have the negative effects on the abnormal stock returns of firms. Among the firm-specific factors examined in this study, the amount of advertising expenditures played a role in alleviating the impact of deceptive advertising on the abnormal stock returns, and the firms charged with consent agreements alone were found to lose less firm value than those charged with additional actions by the FTC. Results also showed that the negative effects on the abnormal stock returns created by the FTC actions did not quickly disappear afterwards. These results imply that marketing managers should exercise caution in designing advertising messages that may or may not intend to violate the FTC rules and regulations on deceptive advertising.     

What's Wrong with "Deceptive" Advertising?

In this paper I present a moral account of the legal notion of deceptive advertising. I argue that no harmful consequences to the consumer need follow from a deceptive advertisement as such, and I suggest instead that one should focus on the consequences of permitting the practise of deceptive advertising on society as a whole. After a brief account of deceptive advertising, I move to discuss the role of the reasonable person standard in its definition. One interpretation of this standard is empirical, aiming to objectify the quality of misleadingness in the advertisement. I offer an alternative normative interpretation which aims to draw the line between the advertiser's responsibility and that of the consumer, between misleading and miscomprehension. I then examine and reject several possible moral grounds for condemning and prohibiting deceptive advertising. These include: harm, in the sense of welfare, to the misled consumer; harm to competitors; and a violation or a reduction of the consumer's autonomy. Finally, I explain how the effect of the practise of deceptive advertising on society as a whole should inform our normative line-drawing between misleading and miscomprehension, and how it provides the basis for the moral evaluation of deceptive advertising.     

Deceptive advertising and third-person perception: The interplay of generalized and specific suspicion

The present research examines the extent to which consumers perceive deceptive advertising claims as effective (i.e., affect one's purchase decision) for themselves and others. Results in two experiments suggest that consumers tend to consider an advertising claim more effective for others than for themselves, when they realize the claim is highly deceptive. In contrast, when perceived deceptiveness is moderate or low, the self–others difference is moderated by consumer dispositional difference in skepticism toward advertising. The effect appears to be driven by the interplay of generalized and specific suspicion, which has a stronger impact on consumer judgment about the effect of deceptive advertising on the self than on others.     

Processing Advertising Information: Deception,Salience, and Inferential Belief Formation

Four recent FTC cases on deceptive advertising were used to examine Fishbein's concepts of attribute salience and inferential belief formation. The findings suggest that (1) attributes considered salient by the FTC may not be considered by consumers when making brand choices, (2) a truthful ad may lead subjects to form incorrect inferential beliefs about product attributes (therefore, such an ad may ultimately be deceptive), and (3) information contained in advertising is processed by subjects to discount exaggerated statements, thus reducing the credibility of the ad.     

Determining the main factors affecting consumers’ acceptance of ethical advertising: A review of the Jordanian market

Studying consumers’ acceptance of the main ethical issues in communication and mainly in advertising has recently been receiving much attention from scholars. It is especially noteworthy when the advertising is seen as a technology-driven communication process and should be prepared based on a sense of consumers’ social responsibility and moral assent. Using a self-reported questionnaire from 450 parents, this study examines the effects of children abuse, sexual appeals, fear appeals and deceptive advertisements on Jordanian parents’ acceptance of ethical advertising. After using the Structural Equation Modeling test, path analysis was used to test the hypothetic relationships employing the Multivariate Regression Models. The study found that sexual appeals and children abuse are the main factors that affect parents’ acceptance of ethical advertising in the Jordanian market.     

Deception in Advertising: A Proposed Complex of Definitions for Researchers,Lawyers, and Regulators

Researchers, lawyers, and regulators need a single, comprehensive, unambiguous, workable guideline for determining whether an advertisement is, or is not, deceptive. To address this need, the author proposes and discusses new definitions of deceptive advertisement, deceptive advertising campaign, and deceiver.     

Deception in Advertising: A Receiver Oriented Approach to Understanding

Whether or not an advertisement is said to be deceptive depends on the understanding and definition of deception being used. The position advocated here is that the focus of any definition must be the receiver of the message. Based on an analysis of veridical perception, a definition of deception in advertising is offered. An approach to measuring deception is also offered. The techniques are all seen as screening techniques, although by their regular use, advertisers should improve the ability of their advertisements to reach their stated objectives as well as reduce the amount of deception.     

Addendum: Are Supermarket Advertisements Designed to Deceive Consumers?

This study builds upon previous research by assessing the magnitude and incidence of experimentally-determined deceptive advertising decisions in supermarket advertisements. In essence, it illustrates the logical second step in a viable approach to estimating the potential for deceptive advertising in other communities and for other types of products.     

Fundamentals of Copy and Layout. Book,Albert C. and C. Dennis Schick. Chicago: Crain Books, 1984. $14.95

Abstract

The Federal Communications Commission relaxed commercial television licensee obligations regarding deceptive advertising in 1985. Local broadcasters may now decide which clearance policies to use to determine if advertisements are deceptive. A national mail survey of commercial television station sales managers was conducted to determine whether advertising clearance policies vary by station profitability or organization size. The proposition that clearance policies may be used to make a station's airtime more attractive to viewers was also given a preliminary test. Results suggest that clearance policies are affected by profitability level and organization size. The implications of study findings are discussed.     

The Effects of Corrective Advertising on Company Image

Corrective advertising, that is, advertising designed compulsorily to undo misleading impressions created by deceptive advertising, is shown in this paper to have an impact on the reputation of the company required to run such advertisements. The authors report on experiments conducted in the United States and Canada to measure the nature and extent of the impact.     

Social Psychological (Mis)Representations in Television Advertising

As a result of the FTC's more aggressive approach to regulating advertising, there has been a noticeable reduction in the amount of blatant lies in advertisements. More subtle forms of deceit are still a problem, however. This paper examines a special form of subtly deceptive advertising termed the social-psychological representation. A case is developed from available conceptual and empirical evidence to show how this apparently innocuous advertising method can deceive advertising receivers. Results are presented from a content analysis of television commercials which reveal that social-psychological representations are used extensively in national advertising.     

The FTC's handling of puffery and other selling claims made “by implication”

The Federal Trade Commission's handling of alleged false advertising representations that are made by implication is examined. Alleged false advertising presentations are held to be implied to the public by the advertiser even though they are not literally stated in his advertisement. The FTC has extended its reach over this kind of misrepresentation in recent years. Cases for 1970–76 are identified, and a catalog is developed of ten types of implications that have been attacked as deceptive during this period. Some, such as the Expansion Implication, are types established as deceptive in earlier years; others, such as the Reasonable Basis Implication, were not attacked prior to the 1970s. Some types, such as the Uniqueness Implication, have been given considerable publicity; others, such as the Inconspicuous Context Implication, are newly categorized in this paper. The consequences of FTC's identification of these types of implications, and of its growing attention to the possibility of misrepresentation by implication, are discussed in detail. A prediction is offered that attention to implications will continue to increase for some time in the future. Puffery is discussed as a category which the FTC might recognize in the future as a type of implied misrepresentation; a rationale is offered for regulating such claims. The role of the researcher is examined, using the assumption that greater attention to misrepresentation that extends beyond a message's literal meaning will produce a greater need for research. The researcher will have attractive opportunities for such work, but will have to confront the problem that playing an advocacy role in legal proceedings may involve significant conflicts with the impartial role that is appropriate for the academic researcher.     

Some Ethical Issues in Computation and Disclosure of Interest Rate and Cost of Credit

Although the mathematics of interest is very precise, the practice of charging computing and disclosing interest or cost of credit is full of variations and therefore often questionable on ethical grounds. The purpose of this paper is to examine some of the prevalent practices which are incorrect, illogical, unfair or deceptive. Both utilitarian and formalist schools of ethical theory would find these practices to be inappropriate. The paper will specifically look at unfair practices in the areas of estimation of intrayear rates, use of 360 days in a year, the "rule of 78th", interest rate ('APR') advertising, and computation of unpaid balance by credit card issuers to figure interest costs.The current practices are not in the best interest of the average consumer. There is, therefore, an urgent need for new legislation, change in regulatory code and disclosure requirement for eliminating these unethical practices. The author recommends that the Truth in Lending Code of the Federal Reserve should require the disclosure of the effective APR if the periodic rate is determined by dividing the 'APR' by the number of payment period in a year; the use of 360 days in a year methods and the "Rule of 78ths" should be immediately discontinued; Deceptive advertising, which tend to understate the true cost of credit or hides hidden costs and fees should be outlawed; interest should be payable with the same frequency as the frequency of compounding and credit card holders should be provided with a comparative example of various methods of balance computation.     

Disentangling the Effects of Perceived Deception and Anticipated Harm on Consumer Responses to Deceptive Advertising

Previous behavioral research on advertising deception has focused on the extent to which consumers would be misled by claims and implications of advertisements. The present research examines the effect of an important, but largely neglected, dimension: the severity of anticipated harm as a result of being deceived. Two experiments disentangle the effect of anticipated harm on consumer brand attitudes and purchase intentions from that of perceived deception. Interestingly, greater harmfulness increases diagnosticity of perceived deception, which partially accounts for consumers’ negative reactions to deceptive advertising. Theoretical, methodological, and ethical implications are discussed.     

Ethics in Advertising Decisionmaking: Implications for Reducing the Incidence of Deceptive Advertising

A survey of 206 advertising professionals assessed the relative influence of four factors (ethics, legal considerations, business considerations, and anticipated approval of management/peers) on decision-making about advertising content and policy. Most professionals were influenced only by legal considerations; ethics exerted a relatively minor role. Age and length of professional experience were related to the factor that exerted the dominant influence on an individual's decisionmaking. Those who were youngest and had least professional experience were most influenced by business considerations. Professionals who were slightly older with slightly more experience were most influenced by legal considerations. Finally, those professionals who were the oldest and had the most experience were primarily influenced by ethical considerations. The results are used as basis for identifying specific actions in professional training, advertising agency management, and advertising regulation which have potential to reduce the incidence of deceptive advertising.     

How consumer heterogeneity muddles the international advertising debate

Standardisation versus localisation is an enduring topic in international advertising. The generalisability of research on the topic is another issue. We address the second issue and in the process shed light on the first. Multifacet analysis on an international advertising data set indicated that individuals within countries accounted for much more variance than countries could account for. This portends that researchers should generalise with caution. It further suggests that some form of standardisation may be appropriate more often than is currently considered. Both between and within-country heterogeneity should influence international advertising strategies.     

The Saga of the Directive on Misleading Advertising

After reviewing the legislative history and the current situation regarding the adjustment of member states' laws to implement the European Community's Directive on Misleading Advertising, it is clear that those who plan or hope to influence future regulatory activities can learn significant lessons from the past. Regulation of advertising should be in accordance with economic and social facts and opinions that are relevant to European conditions, indeed to conditions in each member state. All major interested and knowledgeable parties—business, consumer groups and government—should be consulted and involved directly in the process. The advertising business should make efforts to educate others accurately about the nature of advertising, the process of preparing effective and appropriate advertising and advertising's effects on consumers, the economy and society. The advertising business should also develop self- regulatory systems more fully.     

The New Zealand Fair Trading Act of 1986: Deceptive Advertising

In 1986, New Zealand introduced the Fair Trading Act, legislation aimed at consumer protection. This act was modeled after similar Australian legislation, while taking into account the legislation and precedents of other countries including the United States, England, and Canada. Although wording of different nations' legislation is often similar, unique national conditions may give rise to different interpretations. The emergence of the Act may indicate a movement toward minimal international standards in consumer protection legislation among common law countries and to a lesser extent, a large number of Western nations. This paper examines the content and performance of the Act concerning deceptive advertising. Available evidence suggests that the frequency and severity of deceptive advertising has declined. Knowledge of the New Zealand experience provides insight into the evolution of consumer protection legislation and insight for American firms planning commerce there.     

Firm and Industry Effects of Advertising Accountancy Services

This article takes up the theme of the growing importance of the need to market financial and professional services by an examination of the case of accountancy services. Recent relaxations on the advertising of accountancy service call for an examitration of the appropriate marketing strategy for accounting firms. Discussion in the article indicates that firm size will have an important influence on the appropriateness of advertising and the form that it fakes. Advertising should form part of an integrated marketing strategy and not be seduced by the relaxation of the controls into focusing attention solely on this one aspect of marketing. As regards industry effects, advertising may be seen to reinforce concentration in the provision of both audit and particrtlarly non-audit services. There are benefits to smaller firms, however, through the use of advertising to emphasise specialist skills. In terms of conduct, advertising may help build up a barrier to entry into the provision of certain services, but is unlikely to replace price competition for the capture of audit clients as a key to the provision of non-audit services.