The purpose of this research is to investigate the impact of advertising on the firm's market value and level of risk. Previous research has documented a positive link between advertising expenditures and future stock returns, i.e. firms with higher advertising to sales ratio seem to have, on average, higher future average returns. Typically, this result has been interpreted in a causal way, with advertising leading to higher returns. According to finance theory, however, higher average returns should reflect in equilibrium a compensation for a higher level of risk. Thus, in our research, we document and examine the impact of advertising on the level of risk of the firm and thus on its market value. We plan to carefully explore and identify the main channels that explain this impact. For example, we will examine how demand side characteristics (e.g. customer loyalty) of highly advertised products affect the firm's cash flows and hence their level of risk. In addition, we study the supply side effects of advertising on firm's cash flows through their impact on firms' cost.