Shareholder Complaints and Marketing Investments

Topic and Objectives

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.

Key Findings

• Firms increase their advertising investments after receiving shareholder complaints.
• Advertising investments help firms mitigate firm value shortfalls.
• The type of shareholder complaint moderates the extent to which firms engage in an advertising response.