Information, Blockbusters, and Stars: A Study of the Film Industry

Posted: 17 Aug 1999

See all articles by S. Abraham Ravid

S. Abraham Ravid

Yeshiva University - Syms School of Business

Abstract

This article presents two alternative explanations for the role of stars in motion pictures. Either informed insiders signal project quality by hiring an expensive star, or stars capture their expected economic rent. These approaches are tested on a sample of movies produced in the 1990s. Means comparisons suggest that star-studded films bring in higher revenues. However, regressions show that any big budget investment increases revenues. Sequels, highly visible films and "family oriented" ratings also contribute to revenues. A higher return on investment is correlated only with G or PG ratings and marginally with sequels. This is consistent with the "rent capture" hypothesis.

JEL Classification: L82

Suggested Citation

Ravid, S. Abraham, Information, Blockbusters, and Stars: A Study of the Film Industry. The Journal of Business, Vol. 72, No. 4, October 1999 . Available at SSRN: https://ssrn.com/abstract=171969

S. Abraham Ravid (Contact Author)

Yeshiva University - Syms School of Business ( email )

United States

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