Voluntary Disclosure of Advertising Expenditures

In this article, I examine the incentives for voluntary disclosure of advertising expenditures for a sample of U.S. firms for the period 1994-2003. I estimate proxies for the proprietary costs and valuation benefits of advertising with data from the mandatory disclosure period. My proxy for proprietary costs is an estimate of the spillover effects of advertising. It is measured by the association between a firmʹs advertising investments and its competitorsʹ market values or future profitability. Valuation benefits are defined by an estimate of the relation between the firmʹs own advertising outlays and its market value or future operating income. I use these proxies to explain firmsʹ discretionary disclosure decisions, and I find that firms that experienced high proprietary costs (valuation benefits) from advertising during the mandatory disclosure period are less (more) likely to disclose their advertising expenses in the discretionary disclosure period.