Abstract
For a sample of over 700 celebrity appointments to corporate boards of directors over the period 1985–2006, we find positive excess market returns at the time of their announcement. The 1-, 2-, and 3-year long-run performance of the appointing firms provide corroborating evidence of the value of these appointments. We conclude that the appointment of celebrities as directors increase a firm’s visibility in a fashion consistent with Merton’s (J Finance 42:483–510, 1987) investor recognition hypothesis.
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Notes
The following Web site provides information about the Google search engine: www.google.com/intl/en/about.html.
The Google searches were run on different days during March 2008 to partially control for variation in information that might be available at any given point in time.
For this matching sample, we start from the bottom of the adjusted Google hits list. Starting with the bottom 5,000 + director/firms, we identify director appointment announcement dates. We are able to find 1,787 related director appointment announcements for our matching sample. Then, we use the following matching criteria to find a match for each celebrity: (1) a director from the matched sample has to have her or his director appointment in the same year as the celebrity director appointment, (2) the matching director also needs to be in the same industry as the celebrity director (we initially use 4-digit SIC, and then relax this requirement to 3-, 2-, and then 1-digit SIC, until a match is found), and then finally (3), the matching director needs to be affiliated to a firm of a similar size at the end of the fiscal year prior to the celebrity announcement year (we use a 20% range to find this firm size match, but if there are multiple potential matches for one celebrity sample, we pick the closest firm size).
More specifically, we estimate the following regression for three alternative holding periods ([+1, +12], [+1, +24], [+1, +36]) following the celebrity appointment:
$$ r_{i,t} - rf_{i,t} = \alpha + \beta_{1} EXRET_{t} + \beta_{2} SIZE_{t} + \beta_{3} HML_{t} + \varepsilon_{i,t} $$i and t are firm and time (monthly) indexes. r, rf, EXRET, SIZE, HML are monthly stock return, risk-free rate, market excess return, size portfolio return, book-to-market portfolio returns. rf, EXRET, SIZE, and HML are from Kenneth French’s Web site. Monthly abnormal returns are captured by α.
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Appendix
Appendix
This appendix provides a sample of the celebrity directors contained in our study. We report celebrity names, their former or current occupations, the year they were appointed to the board, the appointing firm, and the industry of the appointing firm. Note: Some celebrity directors may be the directors of more than one firm.
Celebrity Name | Occupation | Appointed | Firm | Industry |
|---|---|---|---|---|
Lyoyd Bentsen | Former U.S. Senator and U.S. vice presidential candidate | 1995 | Ivax | Generic pharmaceutical products |
Nicholas F. Brady | Former U.S. Secretary of Treasury | 1993 | Heinz (H.J.) | Food manufacturer (e.g., ketchup) |
Richard B. Cheney | Former U.S. vice president | 1993 | Procter & Gamble | Consumer products |
Deepak Chopra | Physician, philosopher, best-selling author | 2004 | Men’s Wearhouse Inc | Men’s suits, other clothing |
Warren Christopher | Former U.S. Secretary of State | 1997 | Edison International | Utilities (electrical) |
Elizabeth Dole | Former governor, wife of U.S. Presidential candidate | 2000 | Gateway | Computers, electronics |
Gerald R. Ford | Former U.S. President | 1994 | Alexander & Alexander Services | Financial services |
Robert M. Gates | U.S. Secretary of Defense | 2003 | Brinker International | Restaurant operator (e.g., Chili’s Bar and Grill) |
Evander Holyfield | Former professional boxer | 1998 | Coca-Cola Bottling | Soft drink manufacturer |
Billie Jean King | Former professional tennis player | 1999 | Altria Group | Tobacco (formerly Philip Morris) |
Nancy Lopez | Former professional golfer | 2006 | The J. M. Smucker Co. | Food manufacturer (e.g., jam) |
Walter F. Mondale | Former U.S. vice president | 1997 | Northwest Airlines | Airline |
Sam Nunn | Former U.S. Senator | 1999 | Dell Computer | Computers, electronics |
H. Norman Schwarzkopf | Army General | 1996 | Home Shopping Network | Retail |
Brent Scowcroft | Former U.S. National Security Advisor, Lieutenant General | 1993 | Pennzoil-Quaker State | Oil, commercial lubricants |
George P. Shultz | Former U.S. Secretaries of Labor, Treasury, and State | 1996 | Gilead Sciences | Biopharmaceutical company |
Tommy Thompson | Former Governor, former Secretary of Health & Human Services | 2005 | Centene Corp. | Financial services |
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Ferris, S.P., Kim, K.A., Nishikawa, T. et al. Reaching for the stars: the appointment of celebrities to corporate boards. Int Rev Econ 58, 337–358 (2011). https://doi.org/10.1007/s12232-011-0139-4
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DOI: https://doi.org/10.1007/s12232-011-0139-4