The Economic Worth of Celebrity Endorsers: An Event Study Analysis

Abstract

Celebrity endorsement has become a prevalent form of advertising in the United States. Despite extensive litera­ture on the effects of celebrity endorsements on consumers' brand attitudes and purchase intentions, little is known about the economic value of these endorsements. Research on this topic has typically focused on theories ex­plaining how celebrity endorsements influence consumers' attitudes and intentions. The authors assess the impact of celebrity endorsement contracts on the expected profitability of a firm by using event study methodology. Their approach assumes that the announcement of a celebrity endorsement contract, usually widely publicized in the business press, is used as information by market analysts to evaluate the potential profitability of endorsement ex­penditures, thereby affecting the firm's expected return. Announcements of 110 celebrity endorsement contracts were analyzed. Results indicate that, on average, the impact of these announcements on stock returns is positive and suggest that celebrity endorsement contracts are generally viewed as a worthwhile investment in advertising.