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

Frederico Belo

University of Minnesota; National Bureau of Economic Research (NBER)

Xiaoji Lin

Ohio State University (OSU) - Fisher College of Business

Maria Ana Vitorino

University of Minnesota - Carlson School of Management

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. Available at SSRN: https://ssrn.com/abstract=1805124 or http://dx.doi.org/10.2139/ssrn.1805124

Frederico Belo (Contact Author)

University of Minnesota ( email )

19th Avenue South
Minneapolis, MN 55455
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Xiaoji Lin

Ohio State University (OSU) - Fisher College of Business ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States

Maria Ana Vitorino

University of Minnesota - Carlson School of Management ( email )

3-150 Carlson School of Management
321 - 19th Avenue South
Minneapolis, MN 55455
United States

HOME PAGE: http://www.tc.umn.edu/~vitorino/

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