The Tiger Woods scandal: a cautionary tale for event studies

Abstract

Purpose

Tiger Woods suffered minor injuries and major scrutiny into his personal life due to a suspicious car crash. Previous research suggests that his sponsors would be expected to suffer a significant negative shock. The purpose of this paper is to determine if there was such a shock and to clarify the role that the estimation and event windows have on measuring its significance.

Design/methodology/approach

The event study methodology is used for Tiger's core sports related sponsors: Electronic Arts (Tiger Woods PGA TOUR), Nike (Nike Golf), and Pepsi (Gatorade) and his sponsors that are unrelated to sports: AT&T, Accenture, and Procter & Gamble.

Findings

The sponsors did not suffer a statistically significant negative cumulative abnormal return. Even under liberal standards and for any event or estimation window that was considered. However, the event windows and estimation windows greatly affected the test statistics.

Originality/value

Tiger Woods' situation is, perhaps, the perfect case study for many papers that have found a negative stock market reaction to a scandal. Yet, there sponsor's stocks did not have a significantly negative response under any condition studied. Also, the estimation window is found to have a very large impact on the test statistics.

Citation

Hood, M. (2012), "The Tiger Woods scandal: a cautionary tale for event studies", Managerial Finance, Vol. 38 No. 5, pp. 543-558. https://doi.org/10.1108/03074351211217850