The Michael Jordan Effect Crawford, Anthony J; Niendorf, Bru

The Michael Jordan effect Crawford, Anthony J; Niendorf, Bruce . American Business Review

Research by Crawford and Niendorf (1999) examines the impact of Michael Jordan’s retirement and subsequent return to basketball on the stock market performance of companies endorsing him. Utilizing event study methodology rooted in the efficient market hypothesis (EMH), the authors analyze abnormal stock returns around key events, such as Jordan’s retirement announcement in 1993 and rumors of his comeback in 1995. Their findings suggest that although media reports exaggerated the extent of Jordan’s influence—labeling him the "$2 billion man"—the actual impact on shareholder wealth was relatively modest and largely temporary. This paper explores the empirical evidence behind these claims and evaluates the notion of the "Michael Jordan effect" within the context of celebrity endorsement and brand equity.

Paper For Above instruction

Celebrity endorsements have long been a staple of advertising strategies, particularly in the United States, where athletes, entertainers, and political figures frequently serve as brand ambassadors. These endorsements aim to leverage the celebrity’s persona to enhance brand recognition, credibility, and overall brand equity. The underlying assumption is that the celebrity’s secondary association with a product or service positively influences consumer perceptions and behaviors, ultimately translating into increased sales and market value for endorsing firms (Keller, 1993).

Michael Jordan’s career trajectory exemplifies the powerful, yet complex, impact of celebrity endorsement. His retirement in 1993 and subsequent basketball comeback in 1995 garnered extensive media coverage, with reports claiming significant economic benefits for endorsing companies. Crawford and Niendorf (1999) investigate this phenomenon by analyzing stock market responses to Jordan’s career milestones, testing the validity of the so-called "Michael Jordan effect." Their research critically examines whether media reports reflecting billions in shareholder wealth accurately depict causal relationships or merely coincide with broader market movements.

The study employs an event study methodology, widely accepted in financial research for assessing the impact of unexpected events on stock prices (Brown & Warner, 1985). By comparing actual stock returns of five major companies endorsing Jordan with expected returns derived from market models, the authors quantify abnormal returns associated with specific events, such as Jordan’s retirement announcement and rumors of his return. These events are analyzed over short windows (two to nine days) to isolate market reactions from general market trends. Notably, the study period coincides with a burgeoning bull market, potentially confounding interpretations of causality (Fama, 1970).

The findings reveal that Jordan’s retirement in 1993 was associated with a small, negative abnormal return of approximately -0.45%, suggesting a modest decline in shareholder wealth. Conversely, rumors of Jordan’s return in 1995 elicited positive abnormal returns, with a cumulative excess of about 2.33% over the event window. However, this surging market response was transient; by the conclusion of the event window, the excess returns had largely dissipated. This pattern indicates that while media buzz initially inflated stock prices, the actual impact on long-term shareholder value was negligible.

An examination of individual firms within the Jordan endorsement portfolio provides further nuance. General Mills, Nike, and other endorsing companies experienced positive excess returns—some exceeding 6%—during the rumor buildup. Interestingly, Nike, Jordan’s principal endorsement partner, did not exhibit a significant abnormal return, suggesting that the effect might be more complex than a direct endorsement correlation. Moreover, the reversal of gains within weeks implies that the market might have overreacted to media hype rather than reflecting fundamental changes in brand value.

The empirical evidence suggests that the "Michael Jordan effect" is, at best, a temporary Market phenomenon rather than a long-lasting enhancement of shareholder value. Although Jordan’s celebrity status bolstered stock prices temporarily, the effect did not persist post-announcement, aligning with literature on market efficiency and investor overreaction (DeBondt & Thaler, 1985). Additionally, the study underscores the importance of considering broader market conditions; the contemporaneous bull market played a significant role in inflating stock values during the period of speculation.

These findings have important implications for marketers and investors. While celebrity endorsements can generate short-term market excitement, sustainable value creation depends on underlying brand strength and consumer loyalty rather than media-driven hype. As Keller (1993) highlights, the true value of celebrity endorsement lies in building brand equity through authentic "secondary associations," which are more durable than market reactions to rumors or media narratives. Consequently, firms should temper expectations about immediate stock market gains derived from celebrity campaigns and focus on long-term branding strategies.

Further research could explore the interaction between media hype, investor psychology, and actual brand performance over longer horizons. Incorporating consumer surveys or brand equity metrics alongside stock return analysis might yield richer insights into how celebrity endorsements influence consumer perceptions versus financial outcomes. Moreover, extending such analysis across different industries and celebrities would help delineate the conditions under which endorsement effects translate into tangible shareholder gains.

References

• Brown, S., & Warner, J. (1985). Using Daily Stock Returns: The Case of Event Studies. The Journal of Financial Economics, 14(1), 3-31.
• DeBondt, W., & Thaler, R. (1985). Does the Stock Market Overreact? The Journal of Finance, 40(3), 793-805.
• Fama, E. F. (1970). Efficient Capital Markets: A Review of Theory and Empirical Work. Journal of Finance, 25(2), 383-417.
• Keller, K. L. (1993). Conceptualizing, Measuring, and Managing Customer-Based Brand Equity. Journal of Marketing, 57(1), 1-22.
• Petty, R. E., Cacioppo, J. T., & Schumann, D. (1983). Central and Peripheral Routes to Advertising Effectiveness: The Moderate Role of Involvement. Journal of Consumer Research, 10(2), 135-146.
• Wulf, S. (1995). More Air Goes Out of Baseball. Time, March 20, 1995.
• Crawford, A. J., & Niendorf, B. (1999). The Michael Jordan effect. American Business Review, 17, 5-10.
• Kamins, T. B., Brand, M. J., Hoeke, S. A., & Moe, J. C. (1989). Two-Sided Versus One-Sided Celebrity Endorsements: The Impact of Advertising Effectiveness and Credibility. Journal of Advertising, 18(2), 4-10.
• Mitchell, A. A., & Olson, J. C. (1981). Are Product Expectations Reality? The Role of Expectancy, Congruence, and Elaboration in Advertising Effectiveness. Journal of Consumer Research, 8(2), 71-81.
• Schmidt, V. A., & Lee, H. (2014). Celebrity Endorsements and Brand Equity: An Empirical Test. Journal of Marketing Research, 51(4), 430-446.