Information Blockbusters and Stars - A Study of the Motion Pictures Industry

Abstract:     
In the first part of the paper, we explore two alternative explanations for the role of stars in the movie business. The first approach is that informed insiders signal project quality by hiring an expensive star. The second is the "rent capture" hypothesis, namely, that stars receive their marginal value.

The second part of the paper tests these hypotheses on a sample of movies produced in the early 90's. Means tests seems to support the industry notion that stars are associated with higher revenues. However, regression analysis only supports the notion that big budgets bring in more revenues, but not a higher return on investment. Stars do not seem to signal either revenues or return on investment. Revenues are also higher for sequels, for family oriented films, and for films that had more reviews. Return on investment is higher for G and PG rated movies, and is marginally higher for sequels. This set of results supports the "rent capture" hypothesis.

JEL Classification: G31,D82

Accepted Paper Series