Celebrity Endorsement and Market Valuation: Evidence from India

Abstract

Celebrity endorsement is one of the popular means of communication in advertising (Biswas et al. 2006; Pringle 2004; Spry et al. 2011; Tong and Hawley 2009). But does celebrity endorsement enhance long-term market performance of the firm? Extant literature does not answer this question. It generally focuses on effectiveness of overall marketing or advertising expenditure (Joshi and Hanssens 2010; Luo and Jong 2012). However, celebrity endorsement is a very specific, expensive, and significant form of advertisement technique (Thwaites et al. 2012) and calls for specific attention in terms of long-term financial returns. Furthermore, depending on national culture, its effectiveness may vary (Choi et al. 2005). Celebrity endorsement is the most commonly used means of advertising in India. According to an estimate, endorsement business in India is more than US$321 million (Mithel and Hector 2013). Given the significance of celebrity endorsements in India, it becomes vital to explore how such endorsement impacts long-term valuation of Indian firms. Since India is an emerging economy, many multinationals intend to expand their market in India. It is inevitable for managers intending to operate in India to understand if endorsements financially pay off or not in this country. To explore long-term financial effectiveness of celebrity endorsements in India, we rely on source credibility model (Ohanian 1990) and efficient market hypothesis (Fama 1970).