The Effect of Brand Acquisition and Disposal on Stock Returns

Michael A. Wiles · Neil A. Morgan · Lopo Leotte Rego

127 citations0/0 files storedJournal of Marketing

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Corporate Finance and Governance Marketing and Advertising Strategies Financial Markets and Investment Strategies

Abstract

Brand acquisitions and disposals are key strategic marketing decisions and often the largest single marketing investments that firms make. Yet little is known about the performance effects of such decisions. This study examines stock market reactions to brand acquisition and disposal announcements in 31 consumer industries. The results reveal that returns to such announcements depend crucially on three complementary firm assets—marketing capabilities, channel relationships, and brand portfolios—but that these effects may not be symmetric across brand acquisitions and disposals. Acquirer abnormal returns are greater for firms with strong marketing capabilities and those that buy brands with higher price/quality positioning than their existing portfolio. Investors also reward buyers that identify cost synergies in integrating new brand(s) into their portfolios but punish those that identify revenue synergies. Conversely, greater abnormal returns arise for sellers with inferior channel relationships and for those selling multiple brands, brands with relatively lower price/quality positioning than the seller's remaining portfolio, and brands unrelated to the rest of the seller's portfolio. The results from a paired subsample provide new knowledge about the positive net shareholder wealth created from brand acquisition–disposal transactions and indicate a strong role of marketing capabilities in creating this wealth.

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References

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