Does Disclosure of Advertising Spending Help Investors and Analysts?

This article examines the impact of publicly listed firms' disclosure of advertising spending in their annual 10-K reports on investor and analyst uncertainty, specifically focusing on idiosyncratic risk—the firm-specific uncertainty about future cash flows. Using data from 2,285 U.S. firms over 25 years, the study finds that disclosure of advertising spending significantly lowers idiosyncratic risk by reducing analyst uncertainty about future firm performance. The effect is stronger for firms with higher financial liquidity, lower financial leverage, lower overall disclosure quality, and those operating in more competitive industries, consistent with agency theory. Additionally, disclosure of advertising spending positively affects firm value in manufacturing and business services sectors, suggesting that chief marketing officers could play a greater role in investor relations and that regulatory bodies like the SEC and FASB should reconsider current disclosure rules.