Brand Capital and Firm Value

Fisher College of Business Working Paper No. 2013-03-04

Charles A. Dice Center Working Paper No. 2013-04

51 Pages Posted: 9 Apr 2011 Last revised: 27 Mar 2013

See all articles by Frederico Belo

Frederico Belo

INSEAD; Centre for Economic Policy Research (CEPR)

Xiaoji Lin

University of Minnesota

Maria Ana Vitorino

INSEAD

Date Written: March 24, 2013

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.

Keywords: Intangible Capital, Q-theory, Return Predictability, Cross-Section of Stock Returns

JEL Classification: G12, E32

Suggested Citation

Belo, Frederico and Lin, Xiaoji and Vitorino, Maria Ana, Brand Capital and Firm Value (March 24, 2013). Fisher College of Business Working Paper No. 2013-03-04, Charles A. Dice Center Working Paper No. 2013-04, Available at SSRN: https://ssrn.com/abstract=1805124 or http://dx.doi.org/10.2139/ssrn.1805124

Frederico Belo (Contact Author)

INSEAD ( email )

Boulevard de Constance
77305 Fontainebleau Cedex
France

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Xiaoji Lin

University of Minnesota ( email )

420 Delaware St. SE
Minneapolis, MN 55455
United States

Maria Ana Vitorino

INSEAD ( email )

Boulevard de Constance
77305 Fontainebleau Cedex
France

HOME PAGE: http://www.maria-ana-vitorino.com/home.html

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