Can Brands Circumvent Marketing Regulations? Exploiting Umbrella Branding in Financial Markets.

Governments often regulate marketing activities to ensure marketers do not misinform consumers and obtain "unfair" advantages. Yet, ample research finds such regulations may be ineffective since marketers are able to circumvent them. We examine if umbrella branding, a marketing strategy of multiple products sharing a common brand, can be used to circumvent marketing regulations on a given product. Specifically, in the asset management industry, we examine if hedge funds, faced with a comprehensive marketing ban, benefited from the advertising by their umbrella brand mutual fund affiliates and, if so, whether the hedge funds exploited this effect. We find that higher advertising by mutual fund affiliates leads to a significant increase in sales of umbrella brand hedge funds and that hedge funds' circumstances in a trailing period impact the likelihood of advertising by their umbrella brand mutual fund affiliates. More importantly, using the 2012 JOBS Act that removed hedge funds' marketing restrictions as a natural experiment, we find that hedge funds' trailing circumstances had significantly less impact on umbrella branded mutual fund advertising after the passage of the JOBS Act. These findings are consistent with hedge funds using umbrella branding to circumvent the marketing ban.