Target Firm Advertising and Firm Value

57 Pages Posted: 19 Nov 2014 Last revised: 3 Jan 2019

See all articles by Eliezer M. Fich

Eliezer M. Fich

Drexel University - Department of Finance

Laura T. Starks

University of Texas at Austin - Department of Finance

Anh L. Tran

Cass Business School, City University London

Date Written: December 18, 2018

Abstract

Appendix is available at: https://ssrn.com/abstract=3304137

Consistent with hypotheses regarding firm advertising, we find that targets with pre-takeover advertising obtain higher premiums, while acquirers earn lower announcement returns. These economically significant effects suggest that, through advertising, targets increase their profile and negotiating power. Further, targets that advertise are more likely to initiate their takeovers, attract multiple bidders, receive revised increased bids, capture more merger rents, and even in failed acquisitions, experience a 1% permanent revaluation. The latter result differentiates between information asymmetry and behavioral explanations for the target advertising. Overall the results support the hypothesis that management advertises to transmit information to investors and potential acquirers.

Keywords: Advertising; Mergers and acquisitions; Information transmission, Behavioral bias

JEL Classification: D03; G02; G14; G34; M41

Suggested Citation

Fich, Eliezer M. and Starks, Laura T. and Tran, Anh L., Target Firm Advertising and Firm Value (December 18, 2018). Available at SSRN: https://ssrn.com/abstract=2526509 or http://dx.doi.org/10.2139/ssrn.2526509

Eliezer M. Fich

Drexel University - Department of Finance ( email )

LeBow College of Business
3220 Market Street – 11th Floor
Philadelphia, PA 19104
(215) 895-2304 (Phone)

Laura T. Starks (Contact Author)

University of Texas at Austin - Department of Finance ( email )

Red McCombs School of Business
Austin, TX 78712
United States
512-471-5899 (Phone)
512-471-5073 (Fax)

Anh L. Tran

Cass Business School, City University London ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom
+44-207-040-5109 (Phone)
+44-207-040-8881 (Fax)

HOME PAGE: http://https://www.cass.city.ac.uk/faculties-and-research/experts/anh-tran

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