The impact of sponsorship announcements on shareholder wealth in Australia

Abstract

PurposeThe purpose of this paper is to examine the impact of 51 sponsorship announcements upon the stock prices of firms sponsoring in Australia. The research examines the broader question of whether sponsorship has the potential to transcend cultural boundaries and contribute to financial performance in regional markets.Design/methodology/approachThe methodology is based on the event study technique which is applied to the estimation of excess returns that arise in response to announcements of corporate sponsorship made by leading industrial stocks trading on the Australian Stock Exchange. Regressions examine whether the cost and duration of sponsorship signal information of importance to investors regarding the financial prospects of sponsoring firms.FindingsA small, fleeting positive increase in wealth effects is observed indicating that economically, sponsorship expenditure in Australia is more or less value neutral. While investors appear indifferent to sponsorship cost, they value short‐term sponsorships of less than two years in particular.Research limitations/implicationsFuture research needs to examine the role of associated variables such as contract size and length, and the type and level of sponsorship investment.Originality/valueFor firms, the study indicates that sponsorship in smaller regional markets should be valued by investors especially when firms keep the duration of the sponsorship as short. As stock prices tend to rise briefly following sponsorship announcements, marketers should leverage sponsorships immediately to gain the attention of investors. For a regional market, short and sharp sponsorships appear to be the optimal approach.