The Value of a Global Brand: Is Perception Reality?

40 Pages Posted: 11 Aug 2011

See all articles by Arturo Bris

Arturo Bris

IMD International; European Corporate Governance Institute (ECGI); Yale University - International Center for Finance

Willem Smit

IMD International; Erasmus Research Institute of Management (ERIM)

Michael Sorell

IMD International

Date Written: November 15, 2010

Abstract

A Global Brand is a firm that leverages its own brand to sell a large array of products in many markets (e.g. Nestlé), compared to another firm, possibly global as well, that prefers to sell under many, sometimes local, smaller brands (e.g. Unilever). This paper analyzes the operating, financial, and market performance of firms included in Interbrand’s 100 Global Brands during the period 2001-2008. The market valuation of intangibles - in particular of brands - has been extensively studied in the literature. These intangibles (brand, intellectual property, employee satisfaction) are inherently valuable. However, only certain firms in an industry implement a Global Brand strategy, so our hypothesis is that any advantage of such strategy has to be eliminated in equilibrium. Our results confirm that Global Brands do not earn significantly higher stock returns. They have larger marketing and R&D expenses. However, their EBIT margins are overall higher, suggesting that global brand firms are priced higher because of their better acceptance among consumers. Additionally, Global Brands sell more per unit of capital (asset turnover), thus resulting in significantly higher return on operating assets. Global Brands take on less debt than other firms because they base their performance on a highly valuable, yet intangible asset, and we indeed confirm that the market-to-book ratio of GB is significantly higher. However, we also show that GB do not display significant risk-adjusted excess returns. The benefit of GB lies on them being low-beta stocks, safe havens in periods of market volatility when diversification is most needed.

Suggested Citation

Bris, Arturo and Smit, Willem and Sorell, Michael, The Value of a Global Brand: Is Perception Reality? (November 15, 2010). Available at SSRN: https://ssrn.com/abstract=1908207 or http://dx.doi.org/10.2139/ssrn.1908207

Arturo Bris (Contact Author)

IMD International ( email )

Ch. de Bellerive 23
P.O. Box 915
CH-1001 Lausanne
Switzerland

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

Yale University - International Center for Finance ( email )

Box 208200
New Haven, CT 06520
United States

Willem Smit

IMD International ( email )

Ch. de Bellerive 23
P.O. Box 915
CH-1001 Lausanne
Switzerland

Erasmus Research Institute of Management (ERIM) ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands
+31 - 10 - 408.19.18 (Phone)
010 - 408.90.11 (Fax)

HOME PAGE: http://www.informationsharing.org/

Michael Sorell

IMD International ( email )

Ch. de Bellerive 23
P.O. Box 915
CH-1001 Lausanne
Switzerland

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