Firms are embedded in the product market as well as the capital market. Their behavior in the product market will inevitably affect their performance in the capital market, and vice versa. Using a sample of Chinese listed firms, we empirically test the existence of spillover effect of advertising on financial constraints in the capital market. We find that product market advertising significantly alleviates the firm's financial constraints, especially when the information asymmetry between insiders and outsiders is more serious and when the firm is in a consumer-product industry. We also find that advertising improves brand value, increases attention, and alleviates peer firms' financial constraints, providing supplementary evidence that one alleviation mechanism is information asymmetry. Further analyses show that advertising significantly reduces the firm's financing costs. These findings provide valuable insights into how firms alleviate financial constraints.

Share pledging by controlling shareholders is accompanied with a risk of control transfer when stock price decline triggers a margin call. This situation motivates controlling shareholders and firms to initiate value-enhancing activities to manage the pledging quagmire. Using a sample of Chinese listed firms, we find that firms with pledging controlling shareholders are more likely to implement mergers and acquisitions (M&As) than other firms. Their M&As also perform better, regardless of whether using short- or long-term stock returns or operating income as the performance measure. Furthermore, the positive effect of share pledging on M&As is more pronounced in non-state-owned enterprises, firms with individual controlling shareholders (especially families), firms with better governance, and firms with higher financial capabilities. Additional analyses on deal types also show that firms with pledging controlling shareholders are more likely to engage in diversified, non-affiliated, and cash-financed acquisitions. These results consistently suggest that M&As may effectively eliminate firms' pledging risks and that share pledging mitigates shareholders' conflict of interest regarding M&A decisions.