Determinants of advertising expenditures: Role of stock prices in an emerging market

Abstract

Abstract This paper documents the relationship between advertising expenditures and stock prices. Using the data of non-financial firms from India, the paper shows that advertising expenditures of a firm are sensitive to its own stock prices and to stock prices of its peer firms during the period between 2000 and 2021. These findings remain qualitatively the same when we use different estimation procedures. The paper also shows that the relationship between advertising expenditures and stock prices depends on the level of product market competition. This relationship becomes more pronounced as product competition increases.