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

Abstract

We evaluate the extent to which brand value can help forecast cash flows and earnings. We rely on brand values of publicly-listed U.S. firms, as estimated by brand consultancy firms Interbrand, Brand Finance and BrandZ between 2006 and 2021. While in-sample regressions suggest a positive incremental impact of brand value estimates (BVE) on future cash flows and earnings, out-of-sample predictions based on linear regressions and Machine Learning methods show that BVE have no additional forecasting power over standard accounting information. An analysis of abnormal returns on zero-cost portfolios based on forecasted cash flow and earnings performance supports this conclusion. Our findings contribute to discussions on the balance sheet recognition and managerial relevance of brand values. Moreover, our results demonstrate the importance of relying on out-of-sample predictions when judging the incremental information content of intangible assets.

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