Advertising intensity, investor recognition, and implied cost of capital

Research output: Journal article publicationJournal articleAcademic researchpeer-review

11 Citations (Scopus)


The main purpose of this paper is to test Merton's (J Finance 42(3):483-510, 1987) hypothesis that better investor recognition is correlated with lower expected returns. We measure investor recognition with the firms' advertising intensity and offer consistent evidence that higher advertising intensity is associated with lower implied cost of capital, as derived from Value Line target prices and dividend forecasts. Investor recognition plays an important role in attracting investors, improving liquidity, and ultimately reducing the cost of capital. The findings shed light on the capital market implications of advertising expenditures and complement the extant research on investor recognition.
Original languageEnglish
Pages (from-to)275-298
Number of pages24
JournalReview of Quantitative Finance and Accounting
Issue number3
Publication statusPublished - 1 Apr 2012


  • Advertising
  • Implied cost of capital
  • Investor recognition

ASJC Scopus subject areas

  • Accounting
  • Business, Management and Accounting(all)
  • Finance


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