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RFS Advance Access published online on August 11, 2003
Review of Financial Studies, doi:10.1093/rfs/hhg039
Review of Financial Studies © The Society for Financial Studies 2003; all rights reserved
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© 2003 The Society for Financial Studies

Original Articles

Advertising, Breadth of Ownership, and Liquidity

Gustavo Grullon 1, George Kanatas 1*, and James P. Weston 1
1 Rice University

* To whom correspondence should be addressed. E-mail: kanatas{at}rice.edu.


  Abstract

We provide empirical evidence that a firm's overall visibility with investors, as measured by its product market advertising, has important consequences for the stock market. Specifically, we show that firms with greater advertising expenditures, ceteris paribus, have a larger number of both individual and institutional investors, and better liquidity of their common stock. Our findings are robust to a variety of methodological approaches and to various measures of liquidity. These results suggest that investors' degree of familiarity with a firm may affect its cost of capital and consequently its value.


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