When a Celebrity Endorser is Disgraced: A Twenty Five Year Event Study
Forthcoming, Marketing Letters
21 Pages Posted: 9 Feb 2013
Date Written: December 12, 2012
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 tend to be 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. Congruent relationships between endorser and brand are less likely to be terminated, as well as endorsement contracts with prominent celebrities. The announcement day return itself appears to play no role in the firm’s decision whether to terminate or not.
Keywords: Celebrity Endorsement, Event Study, Stock Returns
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