Brand Capital and Firm Value

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

Review of Economic Dynamics, 2014, vol. 17, issue 1, 150-169

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 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. (Copyright: Elsevier)

Keywords: Asset pricing; Intangible capital; Return predictability; SEOs (search for similar items in EconPapers)
JEL-codes: E13 E32 G12 G14 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (43)

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DOI: 10.1016/j.red.2013.05.001

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