Investor Sentiment, Product Features, and Advertising Investment Sensitivities

Investor sentiment plays an important role, affecting firm level advertising expenditures. Weprovide evidence that financially constrained firms exhibit lower advertising investment-cashflow sensitivity and higher advertising investment-q sensitivity during high sentiment periods.The patterns are driven mainly by those firms facing financial constraints. More importantly, weidentify several product features that also affect advertising investment sensitivities. Sorting onproduct features generates investment sensitivities that closely resemble those of sorting onfinancial constraint measures. We design empirical analyses to provide clean tests of the cost-ofexternal-financing-based and product-feature-based explanations underlying the variation inadvertising investment sensitivities.