Brand Capital and Firm Value

Frederico Belo, Xiaoji Lin and Maria Ana Vitorino
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Frederico Belo: University of MN
Maria Ana Vitorino: University of MN

Working Paper Series from Ohio State University, Charles A. Dice Center for Research in Financial Economics

Abstract: We study the role of brand capital--a primary form of intangible capital--for firm valuation and risk in the cross section of publicly traded firms. Using a novel empirical measure of brand capital stock constructed from advertising expenditures accounting data, we show that: (i) firms with low brand capital investment rates have higher average stock returns than firms with high brand capital investment rates, a difference of 5.2% per annum; (ii) more brand capital intensive firms have higher average stock returns than less brand capital intensive firms, a difference of 5.1% per annum; and (iii) investment in both brand capital and physical capital is volatile and procyclical. A neoclassical investment-based model in which brand capital is a factor of production subject to adjustment costs matches the data well. The model also provides a novel explanation for the empirical links between advertising expenditures and stock returns around seasoned equity offerings (SEO) documented in previous studies.

JEL-codes: E32 G12 (search for similar items in EconPapers)
Date: 2013-03
New Economics Papers: this item is included in nep-cfn, nep-ind, nep-ipr, nep-pr~, nep-mac and nep-mkt
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Journal Article: Brand Capital and Firm Value (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:ecl:ohidic:2013-04

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