While advertising activities are primarily directed toward the purchasers in a market, it also stands to reason that it has an indirect effect on the financial markets: the belief that a company will be successful in growing its market share through advertising leads to an expectation of greater revenue and better financial performance of the company as a whole, which makes its stock and other investment vehicles more appealing to investors.
However, this is not as straightforward as it seems: investors take different perspectives as to their preference for short-term versus long-term profitability of their investments. The long-term investor is more concerned with slow and sustainable growth, whereas the short-term investor wants as much of a return as soon as possible and shows little concern for the long-term sustainability of the firm.
The effect of investor confidence is likewise not solely to be considered in terms of new investors purchasing into a company, but of existing investors selling out. Where any action on the part of the firm signals the potential for short-term profit but long-term damage, institutional investors dump their holdings on the hordes of eager short-term investors. Likewise, when an action serves the long-term benefit of a firm at the sacrifice of short-term profits, the short-term investor leave the firm and unload their holdings on those with a greater long-term interest.
This problem is complicated by the traditional approach to ownership, in which the investors maintain complete control over the firm and place their interests before those of all other stakeholders. Since management is beholden to investors, it is essentially helpless to object to the agenda of those investors. Where investors wish the firm to achieve short-term returns while sacrificing the long-term sustainability, management must yield to this directive (or be replaced by more amenable managers if they resist).
While it is believed that the articles of incorporation provide protection against the firm’s being raided by investors with a short-term agenda, this protection is entirely superficial, given that the investors can simply change the articles to favor their agenda. There is no contract or manifesto that is ironclad, as history has shown.