Corporate Sponsorship of the 2008, 2012, and 2016 Summer Olympics: A Test of Market Efficiency

Abstract

Corporate sponsorship is a form of advertising that companies pay to be associated with certain events. Firms with corporate sponsorships of an event such as the Olympic Games can maximize stockholder wealth by evaluating the returns on these investments. In order to evaluate the returns on these investment decisions, this study employs an event study methodology in the finance literature. Using the risk-adjusted event study methodology, this study tests the hypothesis that the risk-adjusted rates of return on the sponsor companies’ stock prices are significantly positively affected by this type of information. The event study tested the effect of the 2008 Beijing, 2012 London and 2016 Rio Summer Olympic games on the sponsor company’s stock prices. The opening ceremonies took place on August 8th, 2008, July 27th, 2012 and August 5th, 2016. Results for all 3 summer Olympic games and the combined global sample show positive gains to their risk-adjusted rates of return of stock prices leading to the opening ceremony, with small gains following the opening ceremony. The evidence also supports the semi-strong form of market efficiency. No investor was able to make an above normal return by acting on the event.