Limited attention by lenders and small business debt financing: Advertising as attention grabber |
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| Institution: | 1. Telfer School of Management, University of Ottawa, Ottawa, Ontario, Canada;2. Guanghua School of Management, Peking University, Beijing, China;3. Asper School of Business, University of Manitoba, Winnipeg, Manitoba, Canada;4. Asper School of Business, University of Manitoba, 181 Freedman Crescent, Winnipeg, MB R3T 5V4, Canada;1. UAE University, College of Business & Economics, United Arab Emirates;2. College of Business Administration, King Saud University, Saudi Arabia;3. Department of Finance, Audit and Accounting Champagne School of Management (Groupe ESC Troyes), France IRG, Université Paris Est Créteil, France;1. Santa Clara University, Economics Department, 500 El Camino Real, Santa Clara, CA 95053, USA;2. University of Oxford, Department of International Development, Mansfield Road, Oxford OX1 3TB, United Kingdom;3. CREST, ENSAE, 5 avenue Henry Le Chatelier, Palaiseau cedex 91764, France |
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| Abstract: | Developing predictions by drawing upon the limited attention perspective, we investigate if small firms may use advertising as an attention grabber to increase their opportunities to access debt financing. Using a sample of over a million observations, we find that small firms with higher advertising expenditure are more likely to gain access to debt financing, thus increasing their financial leverage. Our tests show that lenders constrained by a limited attentional capacity are more likely to be attracted by small firms with higher advertising expenditure, and that small firms with financial constraints are not found to use advertisement intentionally to acquire resource. |
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