Saturday, April 03, 2010

Business.view: The celebrity effect | The Economist

Business.view: The celebrity effect | The Economist:
"According to “Reaching for the Stars: The Appointment of Celebrities to Corporate Boards”, a new study by four American-based economists, simply announcing that a celebrity is joining a board gives the company’s share price a boost. Disney’s share price jumped by 4.2% on the day Mr Poitier was appointed. But, for the more than 700 celebrity director appointments (out of over 70,000 board appointments in all) that the study examines during 1985-2006, the firms’ shares continued to outperform significantly over the subsequent one, two and three years.

Why is this? In some cases—a former president, say—powerful connections and the ability to open the right doors were surely a factor.....the economists point to the “visibility effect”—that appointing a celebrity helps draw the attention of investors to a company which, all else being equal, increases demand for its shares and thus its share price."

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