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What happens in acquisitions?

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  • Fee, C. Edward
  • Hadlock, Charles J.
  • Pierce, Joshua R.

Abstract

We study advertising at the brand level in a sample of corporate acquisitions. New owners display an elevated propensity to sharply cut advertising in acquired brands. This behavior is most pronounced in private equity transactions. When a buyer's existing brands overlap with the acquired brands, aggregate advertising spending on the merged portfolio of brands tends to shift downward. Sharp advertising cuts are more likely to be observed when the old owner of the assets was investing at an elevated level and when the new owner has displayed past restraint in their investment spending activities. Combined buyer and seller abnormal returns are more positive in deals characterized by post-acquisition cuts in advertising, suggesting that these cuts often represent efficiency-enhancing cost savings.

Suggested Citation

  • Fee, C. Edward & Hadlock, Charles J. & Pierce, Joshua R., 2012. "What happens in acquisitions?," Journal of Corporate Finance, Elsevier, vol. 18(3), pages 584-597.
    • Handle: RePEc:eee:corfin:v:18:y:2012:i:3:p:584-597
    DOI: 10.1016/j.jcorpfin.2012.02.007
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    Cited by:

    1. Hsu, Junming & Yang, Tung-Hsiao & Tsai, Yi-Chi, 2021. "The long-run performance of cross-border acquirers: An analysis of synergy sources," Journal of Multinational Financial Management, Elsevier, vol. 60(C).
    2. Sorin Daniliuc & Chris Bilson & Greg Shailer, 2014. "The Interaction of Post-Acquisition Integration and Acquisition Focus in Relation to Long-Run Performance," International Review of Finance, International Review of Finance Ltd., vol. 14(4), pages 587-612, December.
    3. John (Jianqiu) Bai & Wang Jin & Matthew Serfling, 2022. "Management Practices and Mergers and Acquisitions," Management Science, INFORMS, vol. 68(3), pages 2141-2165, March.
    4. Monica B. Fine & Kimberly Gleason & Desi Budeva, 2016. "Getting what you’re worth: Implications that affect firm value in a brand acquisition," Journal of Brand Management, Palgrave Macmillan, vol. 23(5), pages 70-96, September.

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    More about this item

    Keywords

    Acquisitions; Mergers; Advertising; Investment; Brands;
    All these keywords.

    JEL classification:

    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • D92 - Microeconomics - - Micro-Based Behavioral Economics - - - Intertemporal Firm Choice, Investment, Capacity, and Financing
    • M37 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Advertising

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