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News, Strategic Advertising and Corporate Finance

Paper Session

Saturday, Jan. 5, 2019 2:30 PM - 4:30 PM

Hilton Atlanta, 203
Hosted By: Association of Financial Economists
  • Chair: David Reeb, National University of Singapore

Buying the Verdict

Lauren Cohen
Harvard University
Umit G. Gurun
University of Texas-Dallas


We document evidence that firms systematically increase specialized, locally targeted advertising following the firm being taken to trial in that given location - precisely following initiation of the suit. In particular, we use legal actions brought against publicly traded firms over the 20 year sample period that progress to trial from 1995-2014. In terms of magnitude, the increase is sizable: targeted local advertising increases by 23% (t=4.39) following the suit. Moreover, firms concentrate these strategic increases in locations where the return on their advertising dollars are largest: in smaller, more concentrated advertising markets where fewer competitor firms are advertising. They focus their advertisement spikes specifically toward jury trials, and in fact specifically toward the most likely jury pool. Lastly, we document that these advertising spikes are associated with verdicts, increasing the probability of a favorable outcome.

Are Market Reactions to M&As Biased by Overextrapolation of Salient News?

Eliezer M. Fich
Drexel University
Guosong Xu
WHU-Otto Beisheim School of Management


We study earnings surprises involving firms in a takeover target’s 1-digit SIC released hours before the M&A public announcement. We find that these surprises correlate with the acquirers’ M&A announcement return, but not with the returns to 4-digit SIC matched bidder and target peer firms. A week after the M&A announcement, acquirers exhibit a stock price reversal and their response to the earnings surprises disappears. We cannot reconcile these findings with rational Bayesian updating, information transmission, or strategic timing theories. The evidence that salient events affect investors’ M&A valuations, supports behavioral theories predicting asset pricing distortions due to cognitive biases.

CEO Turnover: Cross-Country Effects

Natasha Burns
University of Texas-San Antonio
Kristina Minnick
Bentley University
Laura Starks
University of Texas-Austin


Corporate boards and their firms’ managers face different environments across countries, including variations in cultural, legal, and regulatory attributes. These variations suggest that the board’s CEO contracting and monitoring process should differ as well. Using CEO turnover across countries as a measure of this process, we find that similar to the U.S., CEO turnover is related to firm performance in many but not all countries. We also find that the turnover varies systematically with country characteristics
Stephen A. Karolyi
Carnegie Mellon University
Samuel Hartzmark
University of Chicago
Francesca Cornelli
London Business School
JEL Classifications
  • G3 - Corporate Finance and Governance
  • K4 - Legal Procedure, the Legal System, and Illegal Behavior