IDEAS home Printed from https://ideas.repec.org/a/inm/ormnsc/v66y2020i3p1473-1495.html
   My bibliography  Save this article

Managing Negative Celebrity Endorser Publicity: How Announcements of Firm (Non)Responses Affect Stock Returns

Author

Listed:
  • Stefan J. Hock

    (School of Business, University of Connecticut, Storrs, Connecticut 06268;)

  • Sascha Raithel

    (School of Business & Economics, Freie Universität Berlin, 14195 Berlin, Germany)

Abstract

Celebrity endorsers can cause negative publicity that can spill over to the endorsed brand. However, little is known about the economic effects of firm reactions to these events. This study fills this gap and estimates how announcements of firms’ reactions (yes versus no), timing (slow versus fast), and type (maintain/suspend versus no reaction) affect daily abnormal stock returns (ARs) following negative publicity. Using 128 events of negative endorser publicity between 1988 and 2016 affecting firms in 230 cases, this study offers new and economically relevant insights. The most surprising finding is that firms can gain value depending on their response. Announcements of firms’ reactions positively affect ARs, especially if they occur quickly after negative publicity surfaces. The analyses reveal that fast (slow) announcements of firms’ reactions increase (decrease) firm value by 2.10% (−1.88%) over the next four trading weeks. Results also show that issuing statements suspending or maintaining the endorser both yield more positive ARs than not reacting at all. Further analyses identify conditions under which the stock market rewards maintaining or suspending an endorser. Firms have more positive ARs when they (1) suspend higher-blame endorsers, (2) suspend endorsers whose negative publicity is related to their occupation, (3) maintain endorsers with a high product fit, and (4) do not suspend apologetic endorsers. This study discusses implications for theory and practice and provides a strong empirical foundation for understanding the consequences of firm reaction announcements to negative celebrity endorser publicity.

Suggested Citation

  • Stefan J. Hock & Sascha Raithel, 2020. "Managing Negative Celebrity Endorser Publicity: How Announcements of Firm (Non)Responses Affect Stock Returns," Management Science, INFORMS, vol. 66(3), pages 1473-1495, March.
    • Handle: RePEc:inm:ormnsc:v:66:y:2020:i:3:p:1473-1495
    DOI: 10.1287/mnsc.2018.3243
    as

    Download full text from publisher

    File URL: https://doi.org/10.1287/mnsc.2018.3243
    Download Restriction: no
    File URL: https://libkey.io/10.1287/mnsc.2018.3243?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Patell, Jm, 1976. "Corporate Forecasts Of Earnings Per Share And Stock-Price Behavior - Empirical Tests," Journal of Accounting Research, Wiley Blackwell, vol. 14(2), pages 246-276.
    2. Christopher R. Knittel & Victor Stango, 2014. "Celebrity Endorsements, Firm Value, and Reputation Risk: Evidence from the Tiger Woods Scandal," Management Science, INFORMS, vol. 60(1), pages 21-37, January.
    3. Alessandro Beber & Marco Pagano, 2013. "Short-Selling Bans Around the World: Evidence from the 2007–09 Crisis," Journal of Finance, American Finance Association, vol. 68(1), pages 343-381, February.
    4. Jeffrey M Wooldridge, 2010. "Econometric Analysis of Cross Section and Panel Data," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262232588, December.
    5. Hung‐Chia Hsu & Adam V. Reed & Jörg Rocholl, 2010. "The New Game in Town: Competitive Effects of IPOs," Journal of Finance, American Finance Association, vol. 65(2), pages 495-528, April.
    6. Alina Sorescu & Nooshin L. Warren & Larisa Ertekin, 2017. "Event study methodology in the marketing literature: an overview," Journal of the Academy of Marketing Science, Springer, vol. 45(2), pages 186-207, March.
    7. Gerard J. Tellis & Joseph Johnson, 2007. "The Value of Quality," Marketing Science, INFORMS, vol. 26(6), pages 758-773, 11-12.
    8. Carhart, Mark M, 1997. "On Persistence in Mutual Fund Performance," Journal of Finance, American Finance Association, vol. 52(1), pages 57-82, March.
    9. Joanne E. Oxley & Rachelle C. Sampson & Brian S. Silverman, 2009. "Arms Race or Détente? How Interfirm Alliance Announcements Change the Stock Market Valuation of Rivals," Management Science, INFORMS, vol. 55(8), pages 1321-1337, August.
    10. Keller, Kevin Lane, 2003. "Brand Synthesis: The Multidimensionality of Brand Knowledge," Journal of Consumer Research, Journal of Consumer Research Inc., vol. 29(4), pages 595-600, March.
    11. Ekkehart Boehmer & Charles M. Jones & Xiaoyan Zhang, 2013. "Shackling Short Sellers: The 2008 Shorting Ban," Review of Financial Studies, Society for Financial Studies, vol. 26(6), pages 1363-1400.
    12. Jörg Breitung & Norman R. Swanson, 2002. "Temporal aggregation and spurious instantaneous causality in multiple time series models," Journal of Time Series Analysis, Wiley Blackwell, vol. 23(6), pages 651-665, November.
    13. Sala-i-Martin, Xavier, 1997. "I Just Ran Two Million Regressions," American Economic Review, American Economic Association, vol. 87(2), pages 178-183, May.
    14. De Bondt, Werner F M & Thaler, Richard H, 1987. "Further Evidence on Investor Overreaction and Stock Market Seasonalit y," Journal of Finance, American Finance Association, vol. 42(3), pages 557-581, July.
    15. Haina Ding & Alexander Molchanov & Philip Stork, 2011. "The value of celebrity endorsements: A stock market perspective," Marketing Letters, Springer, vol. 22(2), pages 147-163, June.
    16. De Bondt, Werner F M & Thaler, Richard, 1985. "Does the Stock Market Overreact?," Journal of Finance, American Finance Association, vol. 40(3), pages 793-805, July.
    17. Amit M. Joshi & Dominique M. Hanssens, 2009. "Movie Advertising and the Stock Market Valuation of Studios: A Case of “Great Expectations?”," Marketing Science, INFORMS, vol. 28(2), pages 239-250, 03-04.
    18. Kevin YC Chung & Timothy P. Derdenger & Kannan Srinivasan, 2013. "Economic Value of Celebrity Endorsements: Tiger Woods' Impact on Sales of Nike Golf Balls," Marketing Science, INFORMS, vol. 32(2), pages 271-293, March.
    19. Fama, Eugene F. & French, Kenneth R., 1993. "Common risk factors in the returns on stocks and bonds," Journal of Financial Economics, Elsevier, vol. 33(1), pages 3-56, February.
    20. Michael Leeds, 2010. "Is bad news always bad? The impact of Floyd Landis's rise and fall on Phonak," Applied Economics Letters, Taylor & Francis Journals, vol. 17(8), pages 805-808.
    21. Adam J. Wowak & Michael J. Mannor & Kaitlin D. Wowak, 2015. "Throwing caution to the wind: The effect of CEO stock option pay on the incidence of product safety problems," Strategic Management Journal, Wiley Blackwell, vol. 36(7), pages 1082-1092, July.
    22. William P. Bottom & Kevin Gibson & Steven E. Daniels & J. Keith Murnighan, 2002. "When Talk Is Not Cheap: Substantive Penance and Expressions of Intent in Rebuilding Cooperation," Organization Science, INFORMS, vol. 13(5), pages 497-513, October.
    23. Abhishek Borah & Gerard J. Tellis, 2014. "Make, Buy, or Ally? Choice of and Payoff from Announcements of Alternate Strategies for Innovations," Marketing Science, INFORMS, vol. 33(1), pages 114-133, January.
    24. Lily Fang & Joel Peress, 2009. "Media Coverage and the Cross‐section of Stock Returns," Journal of Finance, American Finance Association, vol. 64(5), pages 2023-2052, October.
    25. Marcellino, Massimiliano, 1999. "Some Consequences of Temporal Aggregation in Empirical Analysis," Journal of Business & Economic Statistics, American Statistical Association, vol. 17(1), pages 129-136, January.
    26. Michael A. Wiles & Shailendra P. Jain & Saurabh Mishra & Charles Lindsey, 2010. "Stock Market Response to Regulatory Reports of Deceptive Advertising: The Moderating Effect of Omission Bias and Firm Reputation," Marketing Science, INFORMS, vol. 29(5), pages 828-845, 09-10.
    27. Misra, Shekhar & Beatty, Sharon E., 1990. "Celebrity spokesperson and brand congruence : An assessment of recall and affect," Journal of Business Research, Elsevier, vol. 21(2), pages 159-173, September.
    28. Lafferty, Barbara A. & Goldsmith, Ronald E., 1999. "Corporate Credibility's Role in Consumers' Attitudes and Purchase Intentions When a High versus a Low Credibility Endorser Is Used in the Ad," Journal of Business Research, Elsevier, vol. 44(2), pages 109-116, February.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Vanitha Swaminathan & Sayan Gupta & Kevin Lane Keller & Donald Lehmann, 2022. "Brand actions and financial consequences: a review of key findings and directions for future research," Journal of the Academy of Marketing Science, Springer, vol. 50(4), pages 639-664, July.
    2. Bahmani, Navid & Bhatnagar, Amit & Gauri, Dinesh, 2023. "Firms’ responses to a black swan macro-crisis: Should they be socially responsible or fiscally conservative?," Journal of Business Research, Elsevier, vol. 161(C).
    3. Edeling, Alexander & Srinivasan, Shuba & Hanssens, Dominique M., 2021. "The marketing–finance interface: A new integrative review of metrics, methods, and findings and an agenda for future research," International Journal of Research in Marketing, Elsevier, vol. 38(4), pages 857-876.
    4. Alexander Mafael & Sascha Raithel & Stefan J. Hock, 2022. "Managing customer satisfaction after a product recall: the joint role of remedy, brand equity, and severity," Journal of the Academy of Marketing Science, Springer, vol. 50(1), pages 174-194, January.
    5. Klostermann, Jan & Meißner, Martin & Max, Alexander & Decker, Reinhold, 2023. "Presentation of celebrities’ private life through visual social media," Journal of Business Research, Elsevier, vol. 156(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Edeling, Alexander & Srinivasan, Shuba & Hanssens, Dominique M., 2021. "The marketing–finance interface: A new integrative review of metrics, methods, and findings and an agenda for future research," International Journal of Research in Marketing, Elsevier, vol. 38(4), pages 857-876.
    2. Alina Sorescu & Nooshin L. Warren & Larisa Ertekin, 2017. "Event study methodology in the marketing literature: an overview," Journal of the Academy of Marketing Science, Springer, vol. 45(2), pages 186-207, March.
    3. Jank, Stephan & Roling, Christoph & Smajlbegovic, Esad, 2021. "Flying under the radar: The effects of short-sale disclosure rules on investor behavior and stock prices," Journal of Financial Economics, Elsevier, vol. 139(1), pages 209-233.
    4. Kiesel, Florian, 2016. "The effect of credit and rating events on credit default swap and equity markets," Publications of Darmstadt Technical University, Institute for Business Studies (BWL) 81265, Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute for Business Studies (BWL).
    5. Abhishek Borah & Gerard J. Tellis, 2014. "Make, Buy, or Ally? Choice of and Payoff from Announcements of Alternate Strategies for Innovations," Marketing Science, INFORMS, vol. 33(1), pages 114-133, January.
    6. Kiesel, F., 2016. "The effect of credit and rating events on credit default swap and equity markets," Publications of Darmstadt Technical University, Institute for Business Studies (BWL) 81247, Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute for Business Studies (BWL).
    7. Darima Fotheringham & Michael A. Wiles, 2023. "The effect of implementing chatbot customer service on stock returns: an event study analysis," Journal of the Academy of Marketing Science, Springer, vol. 51(4), pages 802-822, July.
    8. Tobias J. Moskowitz & Mark Grinblatt, 2002. "What Do We Really Know About the Cross-Sectional Relation Between Past and Expected Returns?," Yale School of Management Working Papers ysm259, Yale School of Management.
    9. Hou, Yang & Meng, Jiayin, 2018. "The momentum effect in the Chinese market and its relationship with the simultaneous and the lagged investor sentiment," MPRA Paper 94838, University Library of Munich, Germany.
    10. Maximilian Klöckner & Christoph G. Schmidt & Stephan M. Wagner, 2022. "When Blockchain Creates Shareholder Value: Empirical Evidence from International Firm Announcements," Production and Operations Management, Production and Operations Management Society, vol. 31(1), pages 46-64, January.
    11. Lee, King Fuei, 2021. "An Anomaly within an Anomaly: The Halloween Effect in the Long-term Reversal Anomaly," MPRA Paper 110859, University Library of Munich, Germany.
    12. Brav, Alon & Geczy, Christopher & Gompers, Paul A., 2000. "Is the abnormal return following equity issuances anomalous?," Journal of Financial Economics, Elsevier, vol. 56(2), pages 209-249, May.
    13. Adam Zaremba & Jacob Koby Shemer, 2018. "Price-Based Investment Strategies," Springer Books, Springer, number 978-3-319-91530-2, June.
    14. Abderrazak Dhaoui & Nesrine Bensalah, 2017. "Asset valuation impact of investor sentiment: A revised Fama–French five-factor model," Journal of Asset Management, Palgrave Macmillan, vol. 18(1), pages 16-28, January.
    15. Stefan Nagel, 2013. "Empirical Cross-Sectional Asset Pricing," Annual Review of Financial Economics, Annual Reviews, vol. 5(1), pages 167-199, November.
    16. Israel, Ronen & Moskowitz, Tobias J., 2013. "The role of shorting, firm size, and time on market anomalies," Journal of Financial Economics, Elsevier, vol. 108(2), pages 275-301.
    17. Fernando Rubio, 2005. "Estrategias Cuantitativas De Valor Y Retornos Por Accion De Largo," Finance 0503029, University Library of Munich, Germany.
    18. Daniel, Kent & Hirshleifer, David & Teoh, Siew Hong, 2002. "Investor psychology in capital markets: evidence and policy implications," Journal of Monetary Economics, Elsevier, vol. 49(1), pages 139-209, January.
    19. Xin Chen & Wei He & Libin Tao & Jianfeng Yu, 2023. "Attention and Underreaction-Related Anomalies," Management Science, INFORMS, vol. 69(1), pages 636-659, January.
    20. Kothari, S. P., 2001. "Capital markets research in accounting," Journal of Accounting and Economics, Elsevier, vol. 31(1-3), pages 105-231, September.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:inm:ormnsc:v:66:y:2020:i:3:p:1473-1495. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Asher (email available below). General contact details of provider: https://edirc.repec.org/data/inforea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.