5. Conclusions and discussions
A substantial body of literature on the marketing-finance interface investigates the effect of marketing strategies on firm value. In this study, we extend the literature and provide more direct evidence using merger and acquisition (M&A) transactions as our empirical laboratory. We examine three hypotheses in this paper. First, temporarily undervalued target firms with a high strategic emphasis on marketing may obtain greater market awareness and customer loyalty. If this is the case, the strong marketing capability of target firms may create marketing synergy and, therefore, acquirers will pay greater premiums to targets and the financial market will react more favorably to merger announcements given that product and financial markets are tightly linkedeethe pro-marketing effect hypothesis. An alternative hypothesis suggests that, under an environment of information asymmetry, target managers may “window dress” target firms, and higher marketing and advertising expenses may represent the target managers' overinvestment problem. As a result, acquirers and public investors with imperfect information would have a concern about paying high premiums or reacting favorably to less profitable targetseethe window dressing hypothesis. In addition, given that better informed IIs may be able to play better in the existence of window dressing and selectively invest in better performing targets, we hypothesize that a greater premium will be placed on targets with active marketing strategies only when they have high institutional ownership or have experienced an increase in the ownership prior to the deal agreementeethe institutional investors' cherry-picking hypothesis.
