The Value of Celebrity Endorsements: a Stock Market Perspective

Topics: Stock market, Endorsement, Abnormal return Pages: 28 (8513 words) Published: March 17, 2013
The Value of Celebrity Endorsements: A Stock Market Perspective Haina Ding, Alexander Molchanov, Philip Stork1

Abstract Are celebrity endorsements worthwhile investments in advertising? To answer this question we analyze a unique sample of 101 announcements made between 1996 and 2008 by firms listed in the US. Internet is the main medium of communication for these announcements. We employ event study methodology and document statistically insignificant abnormal returns around the announcement dates. This finding is consistent with the notion that the incremental benefits from celebrity endorsements closely match the incremental costs due to such contracts. Further, we investigate if the announcement date return depends on a number of characteristics that are often used in the endorsement literature. As a result, we find that endorsements of technology industry products coincide with significant positive abnormal returns around the announcement dates. Finally, we find weak support for the match-up hypothesis between celebrities and endorsed products. Keywords: Event Study; Celebrity Endorsement; Match-Up; Internet; Marketing. JEL Classification: G14, M37

1 Address correspondence to Philip Stork, Massey University, College of Business, School of Economics and Finance, Private Bag 102 904, North Shore Mail Centre, Auckland, New Zealand, or email:

1 Introduction and Prior Work
The use of celebrities to endorse products and services has been a popular marketing strategy used by corporations for decades. Estimates suggest that as much as 25 percent of all television commercials (Erdogan et al. 2001) and 10 percent of advertiser’s budgets involve celebrity endorsements (Agrawal and Kamakura 1995). As many as 25 percent of American companies use celebrities in their advertising campaigns (Shimp 2000). In 2001, US companies paid $897 million to athletes, coaches, and sports personalities (Sports Business Journal 2002). In 2003, Nike spent $1.44 billion on celebrity endorsements (CNN Money 2003). Between two and three billion dollars were spent on celebrity advertising in 2006 in US alone (White et al. 2009). Such popularity of celebrity endorsements is hardly surprising. There is a bulk of anecdotal evidence linking the use of celebrities in advertising campaigns to improvement in operating performance. Estimates place Michael Jordan’s endorsement activities to be worth $10 billion in the course of his NBA career (Erdogan et al. 2001). PepsiCo’s management has attributed a two percent global market share increase to Spice Girls’ endorsement (Advertising Age International 1997).

Indeed, theoretical literature focusing on potential positive aspects of celebrity endorsements has been well developed. Among the main justifications for the use of celebrity endorsements are that celebrities make advertisement believable and enhance consumer recognition (Kamins et al. 1989; Friedman and Friedman 1979). Celebrities are believed to help in the recognition of brand names and to create both a positive attitude and a distinct personality for the endorsed brand (Petty et al. 1983; Kamins et al. 1989; McCracken 1989). It is generally believed that retailers have a better chance of communicating their message to consumers when celebrities are featured in advertising campaigns (Choi and Rifon 2007). Given the anecdotal and academic evidence of the potential beneficial effect of celebrity endorsements on sales and market shares, one might expect a positive impact of celebrity endorsement announcements on respective firms’ stock prices. After all, the stock price represents the discounted value of future cash flows, which supposedly increase following the involvement of a celebrity in the advertising campaign.2 A prominent paper investigating the issue in an event-study setting is Agrawal and Kamakura (1995). The authors assume that the announcement of a celebrity endorsement contract is used as 2 It is important to...

References: Agrawal, J., & Kamakura, W.A. (1995). The Economic Worth of Celebrity Endorsers: An
Event Study Analysis
Atkin, C., & Block, M. (1983). Effectiveness of Celebrity Endorsers. Journal of Advertising
Research, 23(1), 57-61.
Baker, M.J., & Churchill, G.A., Jr. (1977). The Impact of Physically Attractive Models on
Advertising Evaluations
Biswas, D., Biswas, A., & Das, N. (2006). The Differential Effects of Celebrity and Expert
Endorsements on Conumer Risk Perceptions
Boyd, T.C., & Shank, M. (2004). Athletes as product Endosers: The Effect of Gender and
Product Relatedness
Byrne, A., Whitehead, M., & Breen, S. (2003). The Naked Truth of Celebrity Endorsement.
Caballero, M.J., & Pride, W.M. (1984). Selected Effects of Salesperson Sex and
Attractiveness in Direct Mail Advertisements
Caballero, M.J., & Solomon, P.J. (1984). Effects of Model Attractiveness on Sales Response.
Choi, S.M., & Rifon, N.J. (2007). Who Is the Celebrity in Advertising? Understanding
Dimensions of Celebrity Images
Clark, J.M., Cornwell, T.B., & Pruitt, S.W. (2002). Corporate Stadium Sponsorships,
Signalling Theory, Agency Conflicts, and Shareholder Wealth
Cornwell, T.B., Pruitt, S.W., & Van Ness, R. (2001). The Value of Winning in Motorsports:
Sponsorship-linked Marketing
Corrado, C.J. (1989). A Nonparametric Test for Abnormal Security-Price Performance in
Event Studies
Costanzo, P.J., & Goodnight, J.E. (2006). Celebrity Endorsements: Matching Celebrity and
Endorsed Brand in Magazine Advertisements
Cowan, A.R. (2008). Eventus 8.0 User’s Guide. Cowan Research LC, Ames, Iowa.
Erdogan, B.Z. (1999). Celebrity Endorsement: A Literature Review. Journal of Marketing
Management, 15(4), 291-314.
Erdogan, B.Z., Baker, M.J., & Tagg, S. (2001). Selecting Celebrity Endorsers: The
Practitioner’s Perspective
Evans, R.B. (1998). Production and Creativity in Advertising. London: Pitman Publishing.
Farrell, K.A., & Frame, W.S. (1997). The Value of Olympic Sponsorships: Who is Capturing
the Gold? Journal of Market Focused Management, 2(2), 171-182.
Farrell, K.A., Karels, G.V., & McClatchey, C.A. (2000). Celebrity Performance and
Endorsement Value: The Case of Tiger Woods
Fink, J.S., Cunningham, G.B. & Kensicki, L.J. (2004). Using Athletes as Endorsers to Sell
Women’s Sport: Attractiveness vs
Fizel, J., McNeill, C.R., & Smaby, T. (2008). Athlete Endorsement Contracts: The Impact of
Conventional Stars
Grinblatt, M., & Titman, S. (1998). Financial Markets and Corporate Strategy. New York:
Hsu, C.-K., & McDonald, D. (2002). An Examination on Multiple Celebrity Endorsers in
Johnston, M.A. (2007). A Review of the Application of Event Studies in Marketing. Academy
of Marketing Science Review, 11(4), 1-31.
Ikenberry, D., Lakonishok, J., & Vermaelen, T. (1995). Market Underreaction to Open
Market Share Repurchases
Kahle, L.R. & Homer, P.M. (1985). Physical Attractiveness of the Celebrity Endorser: A
Social Adaptation Perspective
Kamins, M.A. (1990). An Investigation into the ‘Match-up’ Hypothesis in Celebrity
Advertising: When Beauty may be only Skin Deep
Kamins, M.A., Brand, M.J., Hoeke, S.A., & Moe, J.C. (1989). Two-Sided Versus One-Sided
Celebrity Endorsements: The Impact on Advertising Effectiveness and Credibility
Kamins, M.A., & Gupta, K. (1994). Congruence Between Spokesperson and Product Type :
A Matchup Hypothesis Perspective
Keller, K.L. (1998). Strategic Brand Management: Building, Measuring and Managing
Brand Equity
Lear, K.E., Runyan, R.C., & Whitaker, W.H. (2009). Sports Celebrity Endorsements in Retail
Products Advertising
Lee, J.-G. & Thorson, E. (2008). The Impact of Celebrity-Product Incongruence on the
Effectiveness of Product Endorsement
Louie, T.A., Kulik, R.L., & Jacobson, R. (2001). When Bad Things Happen to the Endorsers
of Good Products
MacKinlay, A.C. (1997). Event Studies in Economics and Finance. Journal of Economic
Literature, 35(1), 13-39.
Mathur, L.K., Mathur, I., & Rangan, N. (1997). The Wealth Effects Associated with a
Celebrity Endorser: The Michael Jordan Phenomenon
McCracken, G. (1989). Who is the Celebrity Endorser? The Journal of Consumer Research,
16(3), 310-321.
McWilliams, A. & Siegel, D. (1997). Event Studies in Management Research: Theoretical
and Empirical Issues
Michaely, R., Thaler, R., & Womack, K. (1995). Price Reactions to Dividend Initiations and
Omissions: Overreaction or Drift? Journal of Finance, 50, 573-608.
Misra, S., & Beatty, S.E. (1990). Celebrity Spokesperson and Brand Congruence. Journal of
Business Research, 21(2), 159-174.
Mishra, D., Bobinski, G.S., Jr., & Bhabra, H. (1997). Assessing the Economic Worth of
Corporate Event Sponsorships: A Stock Market Perspective
Miyazaki, A.D., & Morgan, A.G. (2001). Assessing Market Value of Event Sponsoring:
Corporate Olympic Sponsorships
Mowen, J.C., & Brown, S.W. (1981). On Explaining and Predicting the Effectiveness of
Celebrity Endorsers
Continue Reading

Please join StudyMode to read the full document

You May Also Find These Documents Helpful

  • Stock and Market Value Essay
  • Celebrity Endorsement Essay
  • Celebrity Endorsement Essay
  • Essay on Celebrity Endorsement
  • Celebrity Endorsement Essay
  • Celebrity Endorsement Essay
  • Celebrity Endorsement Essay
  • Celebrity Endorsement Essay

Become a StudyMode Member

Sign Up - It's Free