Shareholder Complaints and Marketing Investments

Shareholder complaints put pressure on firms, yet firms rarely address the actual issues raised in these complaints. We examine whether publicly-listed firms respond in an alternative way by altering advertising investments to ward off the performance shortfalls associated with shareholder complaints. Analyzing a unique data set of all shareholder complaints submitted to S&P 1500 firms between 2001 and 2016, we document that firms increase their advertising investments following shareholder complaints and that such an advertising investment response is effective in mitigating the post-complaint decline in firm value. Furthermore, results suggest that firms are more likely to increase advertising investments when shareholder complaints are more severe and when they pertain to non-financial issues. The findings provide new insights on how firms address stock market adversities with their advertising investments and inform managers about the effectiveness of such an advertising investment response.