Information, Blockbusters, and Stars: A Study of the Film Industry

S Abraham Ravid

The Journal of Business, 1999, vol. 72, issue 4, 463-92

Abstract: This article presents two alternative explanations for the role of stars in motion pictures. Either informed insiders signal project quality by hiring an expensive star, or stars capture their expected economic rent. These approaches are tested on a sample of movies produced in the 1990s. Means comparisons suggest that star-studded films bring in higher revenues. However, regressions show that any big budget investment increases revenues. Sequels, highly visible films and "family oriented" ratings also contribute to revenues. A higher return on investment is correlated only with G or PG ratings and marginally with sequels. This is consistent with the "rent capture" hypothesis. Copyright 1999 by University of Chicago Press.

Date: 1999
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