Brand Perception, Cash Flow Stability, and Financial Policy
Penn State University
March 1, 2013
Journal of Financial Economics (JFE), Forthcoming
This paper demonstrates that intangible assets play an important role in financial policy. Using a proprietary database of consumer brand evaluation, I show that positive consumer attitude toward a firm’s products alleviates financial frictions and provides additional net debt capacity, as measured by higher leverage and lower cash holdings. Brand perception affects financial policy through reducing overall firm riskiness, as strong consumer evaluations translate into lower future cash flow volatility as well as higher credit ratings for potentially volatile firms. The impact of brand is stronger among small firms, contradicting a number of reverse causality and omitted variables explanations.
Number of Pages in PDF File: 50
Keywords: product market, consumer demand, capital structure, cash, payout
JEL Classification: G30, G32, G35, G39
Date posted: November 17, 2010 ; Last revised: September 5, 2013
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