As a result of the diminishing effectiveness of broadcast advertising, firms are increasingly turning to product placements in films and television to promote their products. A growing stream of product placement research has conducted surveys of consumer and practitioner views on the practice and experiments to gauge product placement's impact on brand awareness, attitudes, and purchase intent. However, there is no evidence of whether firms’ investments in film product placements are worthwhile. The event study of 126 product placements in successful films during 2002 reveals a mean cumulative abnormal return of .89% during the film's opening, indicating that product placement in a successful film is associated with positive movements in firm stock prices. Cross-sectional analysis of the returns offers new insight into how product, film, and execution factors influence the placement's worth. The authors find that placement abnormal returns are enhanced by tie-in advertising and brand equity but are inhibited by audience absorption, critical acclaim, and violent film content. Placement modality, character associations, and blatancy also significantly affect the placement's value.
We study empirically whether nonfinancial firms' behavior is consistent with systematic risk-shifting. We compare firms' operating risk before and after a debt issue, under the assumption that if there is any risk-shifting it is most likely to occur right after a debt issue. We document a significant increase in firms' operating risk, even after adjusting for industry influences. The risk-shifting is higher for firms with no subsequent debt issues, and for firms with lower credit ratings. Other determinants are earnings volatility, size of debt issue, and whether the bond is callable.
Two common methods of attracting corporate investment are investment incentives and tax incentives. It is important to use the two incentives in the correct proportions, otherwise the government will give up too much value in the process of attracting investment. This paper examines the effect of tax cut and investment subsidy on the government's net benefit from a project. Earlier studies concluded that it was optimal to use only investment subsidy and no tax cuts. We show that this is not true when debt financing is possible, and it is generally optimal (from the government's perspective) to use a combination of tax reduction and investment subsidy. The optimal tax rate and optimal investment subsidy are identified and analyzed in the paper. It is shown that using a sub‐optimal combination of incentives can result in substantial reduction of benefits for the government.
I examine the roles of valuable internal capital markets, cross‐subsidization, and insider ownership as determinants of choice between tracking stock and spin‐offs in corporate equity restructuring. I show that conglomerates are more likely to choose tracking stock if they want to obtain some of the benefits offered by a spin‐off, without loosing the potential for valuable internal capital markets. My results suggest that the market rewards firms with valuable internal capital markets that opt for tracking stocks, and penalizes the possibility of consolidated tax treatments. The market also reacts more favorably to unanticipated tracking‐stock announcements.
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