Advertising Spillover and Capital Market Dynamics: The Role of Financial Constraints
Keywords:
Advertising, Financial constraints, Information asymmetry, Product market and Capital marketAbstract
This study investigates the relationship between advertising expenses and the capital market performance of top 100 non-financial firms listed on Pakistan stock exchange, utilizing data from annual reports spanning 2014 to 2023. Employing descriptive statistics, correlation matrix, variance inflation factor, and overall regression analysis, we aim to explain the impact of advertising on financial constraints and market outcomes. The baseline regression analysis reveals that increased advertising expenses correlate with reduced financial constraints, as companies deploy diverse strategies to enhance their capital market standing. Notably, the analysis indicates superior outcomes when company investments are evaluated using the AD2 metric. The overall regression analysis further demonstrates that when investment is treated as the dependent variable, the explanatory power of the independent variable significantly improves. Our findings affirm the complex link between product and financial markets, contributing to the growing body of literature on the economic implications of advertising amid financial constraints. This research offers valuable insights for organizations striving to navigate budgetary constraints and suggests that future studies should explore the broader effects of advertising spillover on other markets, such as corporate control and managerial labor.
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