Product advertising and financial analyst forecasts

We examine whether product advertising provides value-relevant information that enables financial analysts to make better earnings and sales forecasts. Our analysis reveals that a firm's product advertising intensity is positively related to the informativeness and accuracy of analyst forecasts. A difference-in-differences test and an instrumental variable analysis identify the causal relationship. Additionally, the effect of advertising on analyst forecast quality is stronger when a firm has greater coverage from industry-expert analysts, exhibits more volatile operating performance, and holds newly registered trademarks. Overall, our evidence suggests that product advertising conveys valuable information that analysts can utilize to produce higher-quality forecasts for investors, highlighting the role of advertising in a firm's overall information environment.