Managerial Objectives, the R-Rating Puzzle and the Production of Violent Films
54 Pages Posted: 6 Jun 2003
Date Written: May 2003
We analyze project choice in the motion pictures industry and find evidence consistent with revenue maximization and excessive hedging. We focus on the production of violent films and films that feature sex and violence. We find that such movies do not provide excess returns, but they increase revenues, particularly in the international market. Further, they tend to lose money less often and their returns are more predictable, even though there are never mega-hits. Our findings are consistent with studies of other industries, and they also partially explain the R-rating puzzle that is, the fact that most films produced are R-rated in spite of much evidence suggesting that G and PG films perform better.
JEL Classification: G31, G34
Suggested Citation: Suggested Citation