Warning Flags: How Global Financial Markets Punish F1 Sponsorship Announcements

What is it about?

This event study investigated the global financial markets' valuation (shareholder returns) of commercial sponsorship announcements in Formula One (F1) motor racing. The study found that, contrary to positive results often seen in US-based research, the market value of firms entering F1 sponsorships generally declined upon announcement. This negative reaction was enhanced by two specific factors: the level of investment (higher costs increased the probability of negative returns) and nationality congruence (sponsors sharing nationality with the team were more likely to face negative returns). Investors appeared suspicious of high-cost F1 sponsorships, likely viewing them as unjustifiable expenditures. Furthermore, the punishment of nationally congruent sponsorships suggests that markets suspect agency conflicts—managerial opportunism, such as leveraging sponsorship hospitality for personal perks—in geographically close relationships.

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Photo by Niels Baars on Unsplash

Photo by Niels Baars on Unsplash