Do marketing activities enhance firm value? Evidence from M&A transactions

In this paper, we use an event study approach and find that aggressive marketing activities of target firms prior to the mergers and acquisitions (M&A) deal are not always compensated with greater premiums and favorable market reactions, which would represent the presence of a potential "window-dressing." Further analysis shows that the positive association between marketing activities and deal performance is conditional on the change in institutional ownership prior to the deal, suggesting that institutional investors cherry-pick good targets with value-enhancing marketing activities. The results hold for both OLS and 2SLS after accounting for potential endogeneity. This paper contributes to the marketing-finance interface literature by providing more precise and direct evidence on how marketing strategies affect firm value.