March 25, 2010 Volume 31, No. 25
Celebrity board members can boost stock market value
Name recognition trumps business experience
On March 10, stock for J.M. Smucker, the famous jam company, closed at $59.19. While that might not be enough to make heads turn, an MU finance expert says that the stock has enjoyed a small boost, as much as 2.1 percent, that could be related directly to one of its board members Nancy Lopez, the well-known golf professional.
Whether endorsing toothpaste or trust funds, celebrities are often used to increase company exposure. Steve Ferris, a professor of finance at Mizzou’s Trulaske College of Business, says that the announcement of celebrity appointments to corporate boards produces an immediate, positive market response.
Ferris, along with researchers from SUNY Buffalo, St. John’s University and the University of Nebraska, examined the stock market reaction to the appointment of nearly 800 celebrities to the boards of U.S. public corporations. Preliminary results show highly positive returns in excess of expectations for the stocks’ increase in value. They concluded that the market reacts to the prestige and status the appointments bring, generating greater visibility for the company.
Although the researchers found that the appointment of popular business CEOs and entrepreneurs was common and accounted for nearly 30 percent of their sample, the large number of politicians who were appointed as directors was surprising, Ferris says. The combination of elected and appointed politicians, such as Gerald Ford, Condoleezza Rice, Evan Bayh, Robert Gates, Andrew Young and Donald Rumsfeld, accounted for almost a quarter of their sample.