What drives acquirers’ myopic marketing management?

ABSTRACT

Acquiring firm managers should allocate marketing investments to maximize synergies from already announced mergers or acquisitions. However, managers may deliberately redistribute marketing capabilities and assets as a response to investor pressure formed by weak stock return around an announcement. We propose that stock returns that are below expectations may create investor pressure, which drives managers to practice myopic marketing management. We present evidence that acquirers are more likely to engage in myopic marketing management when they experience a negative stock market reaction around a merger announcement. Acquirers tend to report lower-than-normal advertising and R&D investments. Empirical results suggest that acquirers use marketing activities as an efficient tool to confront negative stock market evaluation. Our study contributes to the myopic management literature by showing when and how firms in mergers and acquisitions are more likely to exhibit opportunistic managerial behaviour. We provide some policy suggestions for both acquiring firm managers and investors.

KEYWORDS:

• Merger and acquisition
• investor pressure
• marketing
• R&D
• managerial myopia

JEL CLASSIFICATION:

• M31 – Marketing
• D21 - Firm Behaviour

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ We excluded mergers and acquisitions in financial industry.

² Following Mizik (2010) who presented evidence of myopic management in the SEO context, we estimate fixed-effects autoregressive forecast models. We control for firm-, time-, and industry-specific effects. Both investments series exhibit a significant persistence: The first-order own lags are 0.528 (p < .01) and 0.111 (p < .01), respectively. Neither series has unit roots.