Why wonder bread lost no dough : materiality, settlements and the FTC's ad sustantiation program

Previous studies (e.g., by Sam Peltzman) reveal powerful share-value effects of Federal Trade Commission (FTC) actions against firms for allegedly false advertising. Curiously, however, when the FTC announces an investigation but simultaneous settlement of the case with the advertiser, no adverse impact results, an empirical finding thus far unexplained. This article uses a recent FTC action, in which the accused advertiser suffered no adverse equity impact, to explain that result. The article focuses on the empirical issue of materiality. Many advertising messages challenged by the FTC are not material to consumers. If not -- and especially when, as in the case discussed here, the advertiser had much earlier discontinued the advertising challenged -- the advertiser predictably would not suffer. Econometric evidence strongly indicates that the messages the FTC challenged were immaterial to consumers.