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RFS Advance Access originally published online on August 11, 2003
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Rev Fin 2004; 17:439-461
The Review of Financial Studies Vol. 17, No. 2, pp. 439–461 © 2004 The Society for Financial Studies; all rights reserved.

Advertising, Breadth of Ownership, and Liquidity

Gustavo Grullon
Rice University

George Kanatas
Rice University

James P. Weston
Rice University

Address correspondence to George Kanatas, Jesse H. Jones Graduate School of Management, 6100 Main St., Houston, TX 77005-1892, or e-mail:kanatas{at}rice.edu.

We provide empirical evidence that a firm's overall visibility with investors, as measured by its product market advertising, has important consequences for the stock market. Specifically we show that firms with greater advertising expenditures, ceteris paribus, have a larger number of both individual and institutional investors, and better liquidity of their common stock. Our findings are robust to a variety of methodological approaches and to various measures of liquidity. These results suggest that the investors' degree of familiarity with a firm may affect its cost of capital and consequently its value.


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