Advertising Securities

Abstract
U.S. companies are prohibited from advertising their securities under Section 5 of the Securities Act of 1933. To investigate what might happen if issuers were allowed to market their securities to the public, we study Singapore, a jurisdiction that permits the use of advertising to solicit interest in initial public offerings (IPOs). Using proprietary data on a representative sample of individuals, we show that advertising strongly influences retail investors to apply. Advertising expenditure at the IPO level is positively associated with the size of the public tranche. Investors who are more responsive to advertising earn significantly lower risk-adjusted returns compared to other IPO investors. Overall, we provide new evidence on the costs and benefits of regulatory limitations placed on issuers of securities. Joint work with Roger Loh, and Chishen Wei.