Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/38677
Authors: 
Higgins, Richard S.
McChesney, Fred S.
Year of Publication: 
2004
Series/Report no.: 
CSIO working paper 0074
Abstract: 
Previous studies (e.g., by Sam Peltzman) reveal powerful share-value effects of Federal Trade Commission (FTC) actions against firms for allegedly false advertising. Curi- ously, however, when the FTC announces an investigation but simultaneous settlement of the case with the advertiser, no adverse impact results, an empirical finding thus far un- explained. This article uses a recent FTC action, in which the accused advertiser suffered no adverse equity impact, to explain that result. The article focuses on the empirical is- sue of materiality. Many advertising messages challenged by the FTC are not material to consumers. If not -- and especially when, as in the case discussed here, the advertiser had much earlier discontinued the advertising challenged -- the advertiser predictably would not suffer. Econometric evidence strongly indicates that the messages the FTC chal- lenged were immaterial to consumers.
Document Type: 
Working Paper

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