Celebrity Endorser Scandals and Competitor Firm Value

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Celebrity endorsement is a common advertising strategy, yet, as well-known scandals show, it is not without risk. Studies at the marketing–finance interface investigate how negative publicity surrounding a celebrity endorser affects firm value, though without determining how such events might spill over to the sponsor firms’ competitors and their stock prices. To address this research gap, the authors assess the impact of celebrity endorser scandals on competitor stock returns with an event study approach. The unique sample of 121 celebrity scandals over a 35-year period reveals a contagion effect, such that competitor firms experience negative stock returns on average, though not to the same extent. According to univariate and regression analyses, the more negative the event affects the sponsor company and the more homogeneous the industry, the stronger the negative spillover effect from a scandal. These findings show that a contagion effect is a likely scenario and offer recommendations for managers regarding how they should adapt their risk management processes and communicate with their boards and shareholders.