The (Apparent) Usefulness of Brand Values for Predicting Cash Flows and Earnings

57 Pages Posted: 20 Oct 2022 Last revised: 14 Jun 2023

See all articles by Marie Dutordoir

Marie Dutordoir

The University of Manchester - Manchester Business School

Oliver Hegers

University of Amsterdam

Joao Quariguasi Frota Neto

The University of Manchester - Alliance Manchester Business School

Frank Verbeeten

Utrecht University - School of Economics

Date Written: October 18, 2022

Abstract

We evaluate the extent to which brand value estimates (BVE) provided by brand value consulting firms have a predictive ability for brandowner cash flows. Our sample consists of BVE of publicly-listed U.S. firms published by Interbrand, Brand Finance and BrandZ between 2006 and 2021. While we find a positive incremental impact of BVE on future cash flows in in-sample regressions, out-of-sample predictions based on linear regressions and Machine Learning methods show that
BVE have no incremental forecasting power over standard accounting information. An analysis of abnormal returns on zero-cost portfolios of brand owners with high and low forecasted cash flows supports this conclusion. Our findings, which extend to earnings forecasts, contribute to discussions on the accounting treatment and disclosure of intangible assets and the usefulness of externally-provided BVE. Moreover, our results demonstrate the importance of relying on out-of-sample tests when evaluating the incremental forecasting ability of intangibles.

Keywords: Brand value, intangible assets, forecasting ability, out-of-sample, Machine Learning, cash flows, earnings

Suggested Citation

Dutordoir, Marie and Hegers, Oliver and Quariguasi Frota Neto, Joao and Verbeeten, Frank H.M., The (Apparent) Usefulness of Brand Values for Predicting Cash Flows and Earnings (October 18, 2022). Available at SSRN: https://ssrn.com/abstract=4251854 or http://dx.doi.org/10.2139/ssrn.4251854

Marie Dutordoir (Contact Author)

The University of Manchester - Manchester Business School ( email )

Booth Street West
Manchester, M15 6PB
United Kingdom

Oliver Hegers

University of Amsterdam ( email )

Spui 21
Amsterdam, 1018 WB
Netherlands

Joao Quariguasi Frota Neto

The University of Manchester - Alliance Manchester Business School ( email )

Booth Street West
Manchester, M15 6PB
United Kingdom

Frank H.M. Verbeeten

Utrecht University - School of Economics ( email )

Kriekenpitplein 21-22
Adam Smith Building
Utrecht, 3584 EC
Netherlands
+31 30 253 9800 (Phone)

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