M&A(dvertising)

Project Start:08/2016
Status:Ongoing
Researchers:Rainer Haselmann, Alexander Hillert, Anja Kunzmann, Stefan Ruenzi
Category: Financial Markets
Funded by:LOEWE

Recent literature finds that investor attention can lead to a temporal mispricing of assets. Da et al. (2011) show that increases in investor attention (measured by Google Search Volume) predict a short-term price continuation followed by a return reversal. Hillert et al. (2014) find that excess media coverage increases the momentum anomaly due to investor overreaction. Last, Lou (2014) shows that increases in a firm's advertising expenditures are associated with contemporaneous positive abnormal stock returns which are followed by a return reversal. In this research project, we test whether and how firms exploit such attention-driven mispricing in the context of M&A transactions. More precisely, we employ a novel dataset of daily print and TV product market advertising to analyze the strategic use of advertising around the announcement of M&A transactions. Thus, we transfer recent findings from the behavioral asset pricing literature to a corporate finance perspective.For acquiring firms, we expect to see an increase in advertsing before stock-financed deals to push up their share prices to acquire the target more cheaply. For target firms, in particular in unsolicited deals, we also predict an increase in advertising because increased prices make the takeover more costly for acquirers. Furthermore, advertising reduces the target's cash holdings and builds up immaterial assets (e.g., brand value) which may be worthless for the acquirer.In addition to the novel high frequency advertising dataset, we will collect detailed information on the timeline of the M&A events from the firms' SEC filings which allows us to precisely identify the periods in which the firms have incentives to influence their stock price.Given the findings in the previous literature that investor attention effects are much stronger for retail investors (e.g., Barber and Odean, 2008), we will differentiate between firms with retail and firms with institutional ownership using the Thomson Reuters Institutional Holdings database.

Related Published Papers

Author/sTitleYearProgram AreaKeywords
Mohamed Aldegwy, Matthias ThiemannVon mikro- zu makroprudenzieller Regulierung
Die Innenwelt der Ökonomie: Wissen, Macht und Performativität in der Wirtschaftswissenschaft (Springer)
2016 Financial Markets Banking Regulation, Systemic Risk, Formalism, Equilibrium Thinking, Discourse, Citation Network Analysis
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