Accounting-Based Brand Scandals and the Implications for Firm-Level Advertising Spending

This study examines strategic firm-level advertising behavior around accounting-based brand scandal events. This analysis is guided by propositions presented in the brand scandal and marketing-finance literatures regarding firm response to brand scandal events. While, recent findings from the marketing-finance literature show that managers tend to reduce advertising when anticipating the release of negative information, this response is contrary to the established support and recommendation from the extant brand scandal literature. This inconsistency suggests that firms treat product-based brand scandal events different from accounting-based brand scandal events. A sample of firms accused of financial misreporting by the Securities and Exchange Commission (SEC) and US Department of Justice between 1977 and 2010 is used to examine the central research question and hypotheses regarding the relationship between accounting-based brand scandals and firm-level advertising spending. The results of this analysis provide empirical support for the relevance of advertising expenditures to firm’s approach to reputation management strategies in the wake of accounting-based brand scandals.