Advertising, earnings prediction and market value: An analysis of persistent UK advertisers

YesThis paper examines whether major media advertising expenditures help in predicting future earnings. We consider the role of media advertising in firms’ marketing efforts and posit that persistent advertisers are more likely to benefit from advertising activities in creating long‐lived intangible assets. Employing a sample of persistent UK advertisers over the period 1997–2013, we find that advertising expenditures are significantly positively associated with firms’ future earnings and market value. We also report size and sector‐based differences in the association between advertising and firms’ future earnings. Our additional analysis provides support for the arguments that despite the recent rise in digital advertising budgets, traditional advertising media are still effective in positively influencing firms’ performance. Overall, the results of this study are consistent with the view that advertising expenditures produce intangible assets, at least for firms in certain sectors. These findings have implications for marketers in providing evidence of the value generated by firms’ advertising budgets, for investors in validating the relevance of advertising information in influencing future earnings, and for accounting regulators in relation to the provision of useful insights for any future deliberations on financial reporting policies for advertising expenditures

Voluntary Disclosure of Country-Level Information and FCPA Violations

The Foreign Corrupt Practices Act (FCPA) of 1977 prohibits U.S. listed firms from bribing foreign government officials for business purposes. We examine whether less transparent firms are more likely to violate the FCPA by testing whether their voluntary disclosure of country-level information explains the violation. We hand-collect voluntarily disclosed geographic information for firms cited for FCPA violations and for a matched control group of nonviolators. We test whether less transparent disclosure of operations (sales and long-lived assets) abroad explains whether firms violate the FCPA. We find supporting evidence. Next, we compare the transparency of FCPA violators that self-reported their violations with the transparency of our control group, as well as the transparency of non-self-reporters to the transparency of our control group. Regulators sanction self-reporters with lower penalties than non-self-reporters. We find that the former are as transparent as the nonviolators. Yet, non-self-reporters are less transparent, suggesting that they drive our results. Overall, our results suggest that more transparent reporting of foreign operations is associated with FCPA compliance. Our study contributes to understanding whether voluntary disclosure signals FCPA compliance, following disclosure theory and instrumental stakeholder theory