Target Firm Advertising and Firm Value

Eliezer M. Fich (), Laura T. Starks () and Anh L. Tran ()
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Eliezer M. Fich: LeBow College of Business, Drexel University, Philadelphia, Pennsylvania 19104
Laura T. Starks: McCombs School of Business, University of Texas at Austin, Austin, Texas 78712
Anh L. Tran: Bayes Business School, City, University of London, London EC1Y 8TZ, United Kingdom

Management Science, 2025, vol. 71, issue 2, 1438-1463

Abstract: Consistent with hypotheses underlying firm advertising, we find that targets with pretakeover advertising obtain higher premiums, whereas their 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 enhanced 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 (search for similar items in EconPapers)
Date: 2025
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