Abstract
This paper investigates how the announcement of negative information about a celebrity endorser impacts firm value, as measured by abnormal stock returns. The unique data sample consists of 93 celebrity disgraces that occurred between 1986 and 2011, affecting firms listed on US stock exchanges. Some evidence is documented of negative and statistically significant abnormal returns around these events. Returns are lower when the disgrace attracts much media attention, or when the celebrity itself is prominent. No significant returns are observed when a firm decides to terminate its endorsement contract with the disgraced celebrity. Endorsement contracts for “edgy” products, for which consumers may actually be attracted by negative publicity, are less likely to be terminated.
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Notes
In this paper, sporting apparel is classified into such “edgy” category.
Such as Telecom Italia.
Thanks are due to two anonymous referees for suggesting several more characteristics.
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Bartz, S., Molchanov, A. & Stork, P.A. When a celebrity endorser is disgraced: A twenty-five-year event study. Mark Lett 24, 131–141 (2013). https://doi.org/10.1007/s11002-013-9229-2
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DOI: https://doi.org/10.1007/s11002-013-9229-2