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What happens in acquisitions?

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

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Corporate Finance.

    Volume (Year): 18 (2012)
    Issue (Month): 3 ()
    Pages: 584-597

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    Handle: RePEc:eee:corfin:v:18:y:2012:i:3:p:584-597

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    Web page: http://www.elsevier.com/locate/jcorpfin

    Related research

    Keywords: Acquisitions; Mergers; Advertising; Investment; Brands;

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    References

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