Brand Capital and Firm Value
University of Minnesota; National Bureau of Economic Research (NBER)
Ohio State University (OSU) - Fisher College of Business
Maria Ana Vitorino
University of Minnesota - Carlson School of Management
March 24, 2013
Fisher College of Business Working Paper No. 2013-03-04
Charles A. Dice Center Working Paper No. 2013-04
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.
Number of Pages in PDF File: 51
Keywords: Intangible Capital, Q-theory, Return Predictability, Cross-Section of Stock Returns
JEL Classification: G12, E32
Date posted: April 9, 2011 ; Last revised: March 27, 2013
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