The Spillover Effect of Advertising on the Capital Market : Evidence from Financial Constraints

Firms are embedded in the product market as well as the capital market. Their behavior in the product market will inevitably affect their performance in the capital market, and vice versa. Using a sample of Chinese listed firms, we empirically test the existence of spillover effects of advertising on financial constraints in the capital market. We find that product market advertising significantly alleviates firm’s financial constraint, especially when the information asymmetry between insiders and outsiders is more serious. We also find that advertising significantly reduces the firm’s financing costs. These findings provide valuable insights into how firms alleviate financial constraints