Advertising and Investor Recognition of Banking Firms: Evidence from Taiwan

Abstract

This study examines the effect of advertising expenditure on strengthening a firm’s intangible capital and firm value by attracting the public on the firm’s visibility and then investigates the role of advertising expenditures on a banking firm’s market value, liquidity, and breadth of ownership. The empirical results find that the advertising has a significantly positive effect on banking firm’s share value, liquidity, and institutional holdings. Consequently, this study concludes that advertising benefits banking firms through increased investor perceptions of such firms. In particular, the findings provide additional support for the home bias phenomena, in which investors prefer to invest in familiar stocks.

KEY WORDS:

• investor recognition
• advertising expenditures
• market valuation
• stock liquidity

Notes

1. Taiwan’s banking sector has been discussed in literature, such as the benefits and negative elements of the relationship between firms and their primary banking partners in Taiwan (Wang, Cheng, and Chang 2012) and the performance of financial holding companies after the Financial Institutions Merger Law and the Financial Holding Company Act in 2000 and 2001 (Lin and Lee 2010; Liu and Hsu 2014).

2. The research on stock and futures markets in Taiwan has been investigated, such as the relation between price limits and margin requirements for stock and index futures (Chou, Lin, and Yu 2006) and the effect of switching exchanges on stock liquidity in Taiwan (Liao and Yu 2013).