A Review of the Application of Event Studies in Marketing

There are numerous calls for more research to focus on the financial impact of strategic marketing decisions on the value of the firm (Doyle, 2000; Rust et al., 2004). Indeed, for the fifth consecutive period, the Marketing Science Institute has determined marketing metrics and the integration of financial measures as key research priorities (Marketing Science Institute, 2006). Given such calls, it is timely to review the evolution and contribution of one financial metric that has been used by marketing researchers over the past 25 years, that is, the use of the event study methodology. The typical event study measures the effect of corporate news on stock prices and on firm value. In the marketing field, researchers have examined a diverse array of firm announcements including the introduction of new products (Chaney, Devinney, and Winer, 1991), green marketing (Mathur and Mathur, 2000) and NASCAR auto racing sponsorships (Pruitt, Cornwell, and Clark, 2004). Findings show how investors react to new marketing information and in turn how strategic marketing decisions impact on the value of the firm.

However, Srinivasan, and Bharadwaj (2004: 23) argue that "despite the considerable potential of the event study method to relate marketing strategy initiatives to changes in shareholder wealth, event studies have been underutilized in marketing." Verbrugge (1997: 124) asserts that event studies in marketing have the potential to develop streams of research where researchers "have begun to build a road map for marketing decisions." The primary purpose of this article is to review the event study literature in marketing to provide marketing researchers with a greater understanding of the evidence for the effects of marketing decisions on capital markets. It identifies the major research "freeways" and methodological "potholes," and overall wishes to stimulate further research using this methodology.

This review, however, is not intended as a guidebook on the use of event study methodology per se. Articles to suit this purpose abound (see MacKinlay, 1997; McWilliams and Siegel, 1997; Srinivasan and Bharadwaj, 2004). Rather, using the track record of existing research and evidence about best practice in this field, it...