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Celebrity Endorsements, Firm Value, and Reputation Risk: Evidence from the Tiger Woods Scandal
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Celebrity Endorsements, Firm Value, and Reputation Risk: Evidence from the Tiger Woods Scandal
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Journal Article
Celebrity Endorsements, Firm Value, and Reputation Risk: Evidence from the Tiger Woods Scandal
2014
Overview
We estimate the stock market effects of the Tiger Woods scandal on his sponsors and sponsors' competitors. In the 10-15 trading days after the onset of the scandal, the full portfolio of sponsors lost more than 2% of market value, with losses concentrated among the core three sponsors: Electronic Arts, Nike, and PepsiCo (Gatorade). Sponsors' day-by-day losses correlate strongly with Google search intensity regarding the endorsement-related impact of the scandal, as well as with qualitative indicators of \"endorsement-related news.\" At least some sponsors' losses were competitors' gains, suggesting that endorsement deals are partially a business-stealing strategy. However, competitors who were themselves celebrity endorsement intensive fared relatively worse than those who were not endorsement intensive, and that difference also correlates day by day with news/search intensity regarding the scandal. It appears that the scandal sent a negative marketwide signal about the reputation risk associated with celebrity endorsements.
This paper was accepted by Pradeep Chintagunta, marketing.
