Target Firm Advertising and Firm Value

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.