Value Appropriation and Firm Shareholder Value: Role of Advertising and Receivables Management

Abstract

ABSTRACT Value-appropriation activities enable a firm to extract more profits from existing customers. The authors examine how investments in two types of value-appropriation activities—advertising and receivables—are jointly associated with abnormal stock returns and idiosyncratic risk. Using data from 1,229 firms over the period of 2003–2015, the authors find that a simultaneous unanticipated increase in advertising investments and receivables investments harms firm shareholder value by decreasing abnormal stock returns and increasing idiosyncratic risk. They find that this association is contingent on firm business scope, such that the joint effect of advertising investments and receivables investments becomes weaker when there is an unanticipated increase in firm business scope compared with when there is an unanticipated decrease in firm business scope.