INTRODUCTION REVIEW OF LITERATURE OBJECTIVES METHODOLOGY ANALYSIS CONCLUSIONS

MARKET REACTION TO
INDIAN PREMIER LEAGUE
SPONSORSHIP ANNOUNCEMENT.

A Research Paper

Garima Kamboj Diksha Kakkar

Assistant Professor Assistant Professor
GGDSD College GGDSD College
Chandigarh Chandigarh
INTRODUCTION REVIEW OF LITERATURE OBJECTIVES METHODOLOGY ANALYSIS CONCLUSIONS

CORPORATE
SPONSORSHIPS
INTRODUCTION REVIEW OF LITERATURE OBJECTIVES METHODOLOGY ANALYSIS CONCLUSIONS

THE IPL EVENT

SPONSORS

Price
Franchise Owner(s) (USD)
Mumbai Indians
Mukesh Ambani(Reliance Industries) $ 111.9m 
Royal Challengers Bangalore Vijay Mallya (UB Group) $ 111.6 m
Deccan Chargers Deccan Chronicle(Venkat Ram Reddy) $ 107.0 
m
Chennai Super Kings India Cements (N.Srinivasan) $ 91.90 m
Delhi Daredevils GMR Holdings (Grandhi Mallikarjuna Rao) $ 84.0 m
THE IPL TEAM Kings XI Punjab Ness Wadia (Bombay Dyeing), Priety Zinta, Mohit
Burman (Dabur) and Karan Paul (Apeejay
$ 76.0 m

OWNERS Kolkata Knight Riders

Rajasthan Royals
Surendera Group)
Red Chillies Entertainment (Shahrukh Khan, Gauri $ 75.1 m
Khan, Juhi Chawla and J Mehta)
Emerging Media (Lachlan Murdoch, A.R Jha and $ 67.0 m
Suresh Chellaram), Shilpa Shetty, Raj Kundra
INTRODUCTION REVIEW OF LITERATURE OBJECTIVES METHODOLOGY ANALYSIS CONCLUSIONS

SPONSORSHIP
EFFECTIVENESS
INTRODUCTION REVIEW OF LITERATURE OBJECTIVES METHODOLOGY ANALYSIS CONCLUSIONS

Event Study Methodology –

To study the Market Reaction

 REVIEW OF
INTRODUCTION OBJECTIVES METHODOLOGY ANALYSIS CONCLUSIONS
LITERATURE

Meenaghan, 1991 Sandler and Shani, 1989

Shani and Sandler, 1996 Fama, 1970
MacKinlay, 1997 Brown and Warner, 1985
Brown and Warner, 1985 Galbraith, 1955
Fama, Fisher, Jensen and Roll, 1969 Patelis, 1997
Agarwal and Kamakura, 1995 Thorbecke, 1997
Chaney, Devinney, andWiner, 1991 D’Amico and Farka, 2002
Lane and Jacobson,1995 Bomfin, 2003
Nayyar, 1995 Craine and Martin, 2003
Mathur and Mathur, 1995 Ramachandran J., 1985
Horsky and Swyngedouw, 1987
 INTRODUCTION REVIEW OF LITERATURE OBJECTIVES METHODOLOGY ANALYSIS CONCLUSIONS

Hence, we may conclude that firms are entering corporate sponsorships because :

 theyare seeking alternative media like event sponsorships to reach target markets
(Meenaghan, 1991).

 Second, marketers are finding it more difficult to differentiate seemingly standardized

products and services through traditional media like advertising which is characterized
by considerable clutter (Ha, 1996).

 Third, firms are realizing that sponsorship offers a potent avenue for practicing “cause
related marketing” (Varadarajan and Menon, 1988) and reaching specified target
groups whose interests may be aligned with a firm’s image and overall marketing
strategy (Javalgi, Traylor, Gross, and Lampman, 1994).

 Finally, marketers are being sensitized to the potential of special events to achieve
wider and cost-efficient accessto customer groups.

In such a scenario assessing the worthiness of such sponsorships becomes

increasingly imperative.
 INTRODUCTION REVIEW OF LITERATURE OBJECTIVES METHODOLOGY ANALYSIS CONCLUSIONS

 To study the impact of Corporate sponsorship announcements of IPL.

H1 Corporate sponsorship announcements and the team buying of IPL provided

information to investors about expected future positive cash flows, and positively
impacted the market value of the announcing firm.

 To examine the stock price reactions to the information content of the

sponsorship announcements of IPL with a view of examining the
efficiency of Indian Stock Market.

H02A: No average abnormal returns around Corporate sponsorship announcements

H02B: No average abnormal returns around Team sold announcements.

H03A: No cumulative average abnormal return around sponsorship announcement.

H03Aa: No cumulative average abnormal returns for 11 days around event day.
H03Ab: No cumulative average abnormal returns for 21 days around event day.
H03Ac: No cumulative average abnormal returns for 41 days around event day.
H03B: No cumulative average abnormal return around team sold announcement.
H03Ba: No cumulative average abnormal returns for 11 days around event day.
H03Bb: No cumulative average abnormal returns for 21 days around event day.
H03Bc: No cumulative average abnormal returns for 41 days around event day.
 INTRODUCTION REVIEW OF LITERATURE OBJECTIVES METHODOLOGY ANALYSIS CONCLUSIONS

 To compare the cumulative abnormal returns of Corporate sponsors

and team buyers in an attempt to find out who gained more

H04 No difference in the cumulative abnormal returns of team buyers and the sponsors .
H04A: No difference in the cumulative abnormal returns for 11 days around event day.
Ho4B: No difference in the cumulative abnormal returns for 21 days around event day.
Ho4C: No difference in the cumulative abnormal returns for 41 days around event day.
INTRODUCTION REVIEW OF LITERATURE OBJECTIVES METHODOLOGY ANALYSIS CONCLUSIONS

The Sample:

The Event Sponsors The Team Buyers

• DLF • Reliance Group
• Kingfisher Airlines • UB Group
• Vodafone • Deccan Chronicle
• Citi Bank
• India Cements
• Hero Honda • GMR Holdings
• Set Max
• Bombay Dyeing
• ITC • Apeejay Surendera
• Pepsi Group
• Red Chillies
Entertainment
• Emerging Media
• Dabur
 INTRODUCTION REVIEW OF LITERATURE OBJECTIVES METHODOLOGY ANALYSIS CONCLUSIONS

The Data:

SAMPLE SIZE Index

• SECONDARY •S&P CNX
• 4 Sponsoring • 2007-2008
SOURCES 500
Companies
• 6 Team Buyers
DATA
PERIOD
COLLECTION
INTRODUCTION REVIEW OF LITERATURE OBJECTIVES METHODOLOGY ANALYSIS CONCLUSIONS

The Technique:

13 February 2008
The Sponsorship Announcement

150 days

08
00
7 07 08

20
2 0 2 0
il r2

y
pr Window Period ch

ar
be ar
5A

nu
2 Clean Period m

Ja
ve M
o 13

16
N
26

20 February 2008
The Teams Sold Announcement

150 days
0 07 0 8
7 r2 20

08
00 be ry Window Period

20
2 a
ay Clean Period m nu

ch
4M ce Ja
De

ar
23

M
3

24
INTRODUCTION REVIEW OF LITERATURE OBJECTIVES METHODOLOGY ANALYSIS CONCLUSIONS

The daily returns : Rit= ln(Pit / Pit-1)

Where, Pit and Pit-1 are respective daily prices for company i at time t and t -1

The actual returns : Rmt = ln(It / It-1)

Where, It and It-1 are respectively daily index values at time t and t-1.

The market model : Rit=I + I Rmt + it

Where Rit and Rmt are the period t returns on security i and the market portfolio
respectively, it is the zero mean disturbance term i and i are the parameters of
the market model.

The abnormal return : ARit = Rit - (i + I Rmt)

i, i are the market model parameter coefficients estimated from an OLS
regression.
 t  ΣAARit
k
CAAR
INTRODUCTION REVIEW OF LITERATURE OBJECTIVES METHODOLOGY ANALYSIS CONCLUSIONS

The average abnormal return for all firms in the sample for day t, (ARt ), is calculated as :

with the standard error of the abnormal returns for day t, SEt , given by :

The t-statistic is computed as :

The Cumulative Average Abnormal Return :

CAAR t k ΣAARit
 INTRODUCTION REVIEW OF LITERATURE OBJECTIVES METHODOLOGY ANALYSIS CONCLUSIONS

 To study the impact of Corporate sponsorship announcements of IPL.

H1 Corporate sponsorship announcements and the team buying of IPL provided

information to investors about expected future positive cash flows, and positively
impacted the market value of the announcing firm.

AAR (Average
Announcement
Event Abnormal t Statistic
Date
Returns)
Sponsorship of
13 Feb 2010 1.643234 1.677324
IPL announced
IPL teams
20 feb 2010 bought by 2.554196 4.097162
Corporate

H1 : ACCEPTED
 INTRODUCTION REVIEW OF LITERATURE OBJECTIVES METHODOLOGY ANALYSIS CONCLUSIONS

 To examine the stock price reactions to the information content of the

sponsorship announcements of IPL with a view of examining the
efficiency of Indian Stock Market.

H02A: No average abnormal returns around Corporate sponsorship announcements

H02B: No average abnormal returns around Team sold announcements.
Days Sponsorship Announcement Teams Sold Announcement

AAR t AAR t
-20 -0.2345 -0.23936 2.456686 3.940746
-19 -0.15951 -0.16282 -0.09189 -0.1474
-18 -0.66582 -0.67963 -3.37192 -5.40886
-17 -3.57974 -3.654 -0.65557 -1.0516
-16 -9.21048 -9.40155 0.896979 1.438836
-15 -0.15282 -0.15599 2.078523 3.334139
-14 -0.79421 -0.81069 -0.98922 -1.5868
-13 0.95832 0.978201 -1.54386 -2.47649
-12 -0.91845 -0.9375 0.233996 0.375351
-11 -0.63022 -0.6433 1.538122 2.467287
-10 0.719749 0.73468 -0.57913 -0.92898
INTRODUCTION REVIEW OF LITERATURE OBJECTIVES METHODOLOGY ANALYSIS CONCLUSIONS

-9 -2.18866 -2.23406 0.668352 1.072097

-8 2.15267 2.197328 0.740575 1.187948
-7 2.818606 2.877079 -1.30223 -2.08889
-6 -0.25172 -0.25694 -1.43974 -2.30947
-5 0.342577 0.349684 -3.05563 -4.90151
-4 0.769437 0.785399 0.368901 0.591751
-3 0.788576 0.804935 -1.27885 -2.0514
-2 -2.21701 -2.26301 -0.5206 -0.83509
-1 -2.02502 -2.06703 0.151291 0.242684
0 1.643234 1.677324 2.554196 4.097162
1 2.097301 2.14081 -2.10778 -3.38108
2 1.387603 1.416389 2.17151 3.483298
3 -0.30071 -0.30695 0.032148 0.051569
4 -1.59762 -1.63077 -0.43846 -0.70333
5 -0.04963 -0.05066 -1.28393 -2.05954
6 -0.23799 -0.24292 -1.83273 -2.93987
7 0.377631 0.385465 -0.09177 -0.14721
8 0.729358 0.744489 1.420113 2.277989
9 -1.43657 -1.46637 0.3688 0.591589
10 -0.57292 -0.5848 -0.14341 -0.23005
11 -0.80829 -0.82506 0.56337 0.903697
12 0.120795 0.123301 -1.32458 -2.12474
INTRODUCTION REVIEW OF LITERATURE OBJECTIVES METHODOLOGY ANALYSIS CONCLUSIONS

13 -0.59367 -0.60598 1.359148 2.180196

14 -1.90243 -1.94189 -0.33499 -0.53736
15 0.1242 0.126776 1.066925 1.711443
16 -0.6838 -0.69799 0.668444 1.072245
17 0.265002 0.2705 -0.84965 -1.36292
18 1.459766 1.490049 -1.23794 -1.98577
19 -3.1188 -3.1835 -0.4985 -0.79964
20 -0.03439 -0.03511 -1.60255 -2.57063

H02A: REJECTED

H02B: REJECTED
 INTRODUCTION REVIEW OF LITERATURE OBJECTIVES METHODOLOGY ANALYSIS CONCLUSIONS

H03A: No cumulative average abnormal return around sponsorship announcement.

H03Aa: No cumulative average abnormal returns for 11 days around event day.
H03B: No cumulative average abnormal return around team sold announcement.
H03Ba: No cumulative average abnormal returns for 11 days around event day.

t df Sig. (2-tailed)

Sponsorship Announcement 1.706 10 .119

Team Sold Announcement -9.271 10 .000

H03Aa: ACCEPTED
H03Ba: REJECTED
 INTRODUCTION REVIEW OF LITERATURE OBJECTIVES METHODOLOGY ANALYSIS CONCLUSIONS

H03Ab: No cumulative average abnormal returns for 21 days around event day.
H03Bb: No cumulative average abnormal returns for 21 days around event day.

t df Sig. (2-tailed)

Sponsorship Announcement 8.329 20 .000

Team Sold Announcement -7.878 20 .000

H03Ab: REJECTED

H03Bb: REJECTED
 INTRODUCTION REVIEW OF LITERATURE OBJECTIVES METHODOLOGY ANALYSIS CONCLUSIONS

H03Ac: No cumulative average abnormal returns for 41 days around event day.
H03Bc: No cumulative average abnormal returns for 41 days around event day.

t df Sig. (2-tailed)
Sponsorship Announcement
-18.832 40 .000
Team Sold Announcement
-7.114 40 .000

H03Ac: REJECTED

H03Bc: REJECTED
 INTRODUCTION REVIEW OF LITERATURE OBJECTIVES METHODOLOGY ANALYSIS CONCLUSIONS

 To compare the cumulative abnormal returns of Corporate sponsors

and team buyers in an attempt to find out who gained more.

H04 No difference in the cumulative abnormal returns of team buyers and the sponsors .
H04A: No difference in the cumulative abnormal returns for 11 days around event day.

Announceme
nt N Mean t P (sig.)
Sponsorship 11 .7635
6.828 .000
Team Sold 11 -3.0119

H04A: REJECTED
 INTRODUCTION REVIEW OF LITERATURE OBJECTIVES METHODOLOGY ANALYSIS CONCLUSIONS

Ho4B: No difference in the cumulative abnormal returns for 21 days around event day.

Announceme
nt N Mean t P (sig.)
Sponsorship 21 3.3501
11.313 .000
Team Sold 21 -4.1658

Ho4B: REJECTED

Ho4C: No difference in the cumulative abnormal returns for 41 days around event day.

Announceme
nt N Mean t P (sig.)
Sponsorship 41 -12.1634
-11.897 .000
Team Sold 41 -2.9931

Ho4C: REJECTED
 INTRODUCTION REVIEW OF LITERATURE OBJECTIVES METHODOLOGY ANALYSIS CONCLUSIONS

 Sponsorship announcements lead o positive perception of future

cash flows on the part on the shareholder.

Overall for the days studied before and after the announcements
revealed that the returns were negatively significant for most
days.

Further, a comparative of the sponsors of IPL and team buyers

revealed that the overall gain of the team buying firms was
greater than tat of the sponsors.
 INTRODUCTION REVIEW OF LITERATURE OBJECTIVES METHODOLOGY ANALYSIS CONCLUSIONS

Future Research

IPL is an important event and a lot of money has been invested

by the corporate in this event. Three IPLs have been announced.
A further research can be carried out to assess the impact of
these sponsorships on the gains made by these firms . Further a
longitudinal analysis of this entire event needs to be carried out to
compute the economic worthiness of such events
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