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Brand Perception, Cash Flow Stability, and Financial Policy

50 Pages Posted: 17 Nov 2010 Last revised: 5 Sep 2013

Yelena Larkin

Schulich School of Business, York University

Date Written: March 1, 2013

Abstract

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.

Keywords: product market, consumer demand, capital structure, cash, payout

JEL Classification: G30, G32, G35, G39

Suggested Citation

Larkin, Yelena, Brand Perception, Cash Flow Stability, and Financial Policy (March 1, 2013). Journal of Financial Economics (JFE), Forthcoming. Available at SSRN: https://ssrn.com/abstract=1710367 or http://dx.doi.org/10.2139/ssrn.1710367

Yelena Larkin (Contact Author)

Schulich School of Business, York University ( email )

4700 Keele Street
Toronto, Ontario M3J 1P3
Canada

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