Question

Alfonso Rodriquez has served as the president of Imports United for the past six years. During his tenure, the company has grown significantly and provided above-average returns to its shareholders. Thus, Mr. Rodriquez is highly admired. Yesterday, he announced that he will be retiring at the end of this quarter. You expected the stock price of Imports United to decline on this news because of the admiration investors have for this gentleman. Contrary to your expectations, the price of the stock remained unchanged. There was no other relevant market news related to this firm and the overall market also remained relatively unchanged for the day. What explanation can be given for the market not reacting as you expected to Mr. Rodriquez's announcement?

Answer 1

Ans. There are many possible reasons for this situation, the one I can relate is:

Halo Effect

It is a term for a consumer's favouritism towards a line of products due to positive experiences with other products by this maker. The halo effect is correlated to brand loyalty and contribute towards brand equity.

When consumers have positive experiences of products with highly visible brands they cognitively form a brand loyalty bias in favour of a brand and its offerings. And therefore no other factors affect their attitude towards the brands. May be in this situation also, consumer might be more associated with the brand than with the president hence the announcement have no affect on the market and it remained unchanged.