The Impact of Brand Quality on Shareholder Value
This study examines the impact of brand quality on three components of shareholder wealth, stock returns, systematic risk and idiosyncratic risk. The study finds that brand quality enhances shareholder wealth as unanticipated changes in brand quality are positively associated with stock returns and negatively related to changes in idiosyncratic risk. However, unanticipated changes in brand quality can also erode shareholder wealth as they have a positive association with changes in systematic risk. The study introduces a contingency theory view to the marketing-finance interface by analyzing the moderating role of two factors that are widely followed by investors. The results show an unanticipated increase (decrease) in current-period earnings enhances (depletes) the positive impact of unanticipated changes in brand quality on stock returns but mitigates (enhances) their deleterious effects on changes in systematic risk. Similarly, brand quality is more valuable for firms facing increasing competition (i.e., unanticipated decreases in industry concentration). The results are robust to endogeneity concerns and across alternative models. The authors conclude by discussing the nuanced implications of their findings for shareholder wealth, reporting brand quality to investors and its use in employee evaluation.
Brand Quality, Stock Returns, Idiosyncratic Risk, Systematic Risk, Earnings, Industry Concentration, Marketing-Finance Interface
Corporate Finance | Marketing
Journal of Marketing
American Marketing Association
Bharadwaj, Sundar G.; TULI, Kapil R.; and Bonfrer, Andre.
The Impact of Brand Quality on Shareholder Value. (2011). Journal of Marketing. 75, (5), 88-104. Research Collection Lee Kong Chian School Of Business.
Available at: http://ink.library.smu.edu.sg/lkcsb_research/3056