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http://crossmark.crossref.org/dialog/?doi=10.1007/s11747-017-0516-y&domain=pdf
Web End = J. of the Acad. Mark. Sci. (2017) 45:186207 DOI 10.1007/s11747-017-0516-y
http://crossmark.crossref.org/dialog/?doi=10.1007/s11747-017-0516-y&domain=pdf
Web End = METHODOLOGICAL PAPER
Event study methodology in the marketing literature: an overview
Alina Sorescu1 & Nooshin L. Warren2 & Larisa Ertekin1
Received: 9 November 2016 /Accepted: 9 January 2017 /Published online: 1 February 2017 # Academy of Marketing Science 2017
Abstract Event studies examine stock price movements around corporate events. These events can be voluntary firm announcements (e.g., new product introduction, alliance formation, channel restructuring) or announcements made by other entities such as regulatory bodies (e.g., FDA approval) or competitors (e.g., new market entry). The event study methodology was developed by finance researchers but has been widely adopted in other fields, including marketing. We review the manner in which event studies have been used in the marketing literature and summarize the current state of knowledge about the design and interpretation of event studies. We provide guidelines for researchers who use this methodology and for readers who draw inferences from results obtained from event studies, and we highlight a few areas where the methodology can be leveraged to help us better understand the financial value of marketing actions.
Keywords Event study . Stock returns . Abnormal stock performance . Corporate announcements . Financial value of marketing actions
Introduction
The objective of an event study is to assess the extent to which investors earn excess or abnormal stock returns from an event that carries new informational content, where an abnormal return is the difference between the observed return and the return expected in the absence of the event, predicted by an appropriate benchmark asset pricing model. The event can be a firm announcement (e.g., the appointment of a new CMO) or an announcement made by a competitor or a regulatory body that can impact the focal firms value (e.g., an FDA drug approval). Underlying this methodology is a semi-strong form of market efficiency, which makes two assumptions. First, stock prices reflect all publicly available information. Second, stock prices instantly change to reflect new information when it becomes available (Fama 1970). Under these assumptions, investors use the new information contained in an announcement to instantly adjust their expectations of the focal firms future cash flows. As a result, the price of...