How do the share prices of football clubs react to new managerial appointments? An event study of publicly listed Danish football clubs Authors: Fredrik Näslund Niklas Howell Supervisor: Jean-Claude Mutiganda Student Umeå School of Business and Economics Spring semester 2014 Bachelor thesis, 15 hp Summary The study sets out to examine whether or not there is an effect on the share price when appointing new managers for football clubs. CEOs and football managers have been compared in terms of responsibilities and while there is a wealth of research on the effect on the share price of appointing a new CEO, there has been little research on the same effect for football managers. With that in mind, the study aims to answer the following research question: How do the share prices of publicly listed Danish football clubs react to managerial appointments? The theoretical framework for the study was based around the efficient market hypothesis, which has been used before in football settings to explain changes in the share price from match outcomes. This study contributes by utilizing the efficient market hypothesis for managerial appointments in the football setting. A quantitative event study was conducted on 5 Danish football clubs listed on the Copenhagen Stock Exchange. In total, between 2003 and 2014 there were 30 managerial appointments. Data were gathered on the dates of announcement, and from that the event study was carried out through multiple regression analysis to gauge whether or not there was a reaction to the appointments. Furthermore, it was tested whether the origin of the manager or the state of the club at the time of announcement had any impact on the share price. Findings showed that there were signs of a positive share price reaction when appointing a new manager. Similarly, signs of a positive share price reaction were also found for clubs that performed badly before the appointment of a new manager. However, these two were not statistically significant. Statistically significant evidence was found for a positive share price reaction when appointing an outsider over an insider as the new manager. This finding supports the efficient market hypothesis in a semi-strong form. Nonetheless, the share price reactions were modest. A reason for the weak positive share price reactions could be due to the lack of efficiency in the Danish football shares, since they appear to be less traded. Acknowledgement This thesis was made through a lot of hard and extensive work, and could not have been completed without the help from certain persons. Therefore, we would like to show our gratitude to these special ones, who have had an impression on our thesis. We would firstly like to thank our supervisor, Jean-Claude Mutiganda, for his guidance during the work. Furthermore, we are very grateful to Ph.D. candidate Virginia Rosales for her thoughtful words and precious remarks. In addition to this, we would like to show our appreciation to our families for making us what we are today and for always supporting us, no matter what. Lastly, we would also like to acknowledge all the students and teachers in the International Business Program for making our time at Umeå University memorable. ____________________ ____________________ Niklas Howell Fredrik Näslund Umeå, May 26th, 2014 Table of Contents 1. Introduction ..................................................................................................................................... 1 1.1 Background ............................................................................................................................... 1 1.1.1 Publicly Listed Football Clubs ........................................................................................... 1 1.1.2 Match Performance and Financial Performance ................................................................ 1 1.1.3 The Football Manager ........................................................................................................ 2 1.2 Problematization ....................................................................................................................... 3 1.3 Research Question ..................................................................................................................... 4 1.4 Research Purpose ...................................................................................................................... 4 1.5 Contribution .............................................................................................................................. 4 1.6 Limitations ................................................................................................................................ 4 1.7 Structure .................................................................................................................................... 5 2. Methodology ................................................................................................................................... 6 2.1 Research Philosophy ................................................................................................................. 6 2.2 Scientific Approach ................................................................................................................... 7 2.3 Research Design ........................................................................................................................ 7 2.4 Research Strategy ...................................................................................................................... 7 2.4.1 Event Study ........................................................................................................................ 8 2.5 Literature Search and Critique .................................................................................................. 9 2.6 Ethical Consideration .............................................................................................................. 10 3. Theoretical Framework ................................................................................................................. 11 3.1 The Rational Expectations Theory .......................................................................................... 11 3.2 The Random Walk Theory ...................................................................................................... 11 3.3 The Efficient Market Hypothesis ............................................................................................ 12 3.4 Efficiency of Danish Football Shares ...................................................................................... 13 3.4.1. Copenhagen Stock Exchange .......................................................................................... 13 3.4.2. Efficiency of Football Shares .......................................................................................... 14 3.5 Match Performance and Share Price Effect ............................................................................ 15 3.6 Top Leadership Change and Share Price Effect ...................................................................... 16 4. Practical Method ........................................................................................................................... 18 4.1 Regression Model and Operationalization of Theory ............................................................. 18 4.2 Definition and Explanation of Statistical Tools ...................................................................... 20 4.2.1 Correlation ........................................................................................................................ 20 4.2.2 Collinearity ....................................................................................................................... 20 4.2.3 R-Square ........................................................................................................................... 20 4.2.4 Durbin-Watson Test ......................................................................................................... 20 4.2.5 ANOVA ........................................................................................................................... 21 4.2.6 Coefficients ...................................................................................................................... 21 4.3 Data Collection ........................................................................................................................ 21 4.3.1 Aalborg Boldspilklub ....................................................................................................... 22 4.3.2 AGF Aarhus ..................................................................................................................... 23 4.3.3 Brøndby IF ....................................................................................................................... 24 4.3.4 F.C København................................................................................................................. 25 4.3.5 Silkeborg IF ...................................................................................................................... 26 5. Results ........................................................................................................................................... 27 5.1 Data Analysis .......................................................................................................................... 27 5.2 Model 1: Event Window of 3