Sending a message: Stock market implications of brand information

Abstract

We study the stock market value relevance of brand capital using three different forms of brand information and find our novel brand orientation measure to be negatively associated with monthly stock returns. When traditional common risk factors are considered the brand-oriented firm stocks yield monthly returns of -0.346% to -0.397% compared to their non-brand-oriented counterparts. We find two possible contributing factors: (1) increased investor attention, especially from private investors, resulting in overpricing and (2) decreased stock market volatility and mitigated risk stemming from sustainable and inseparable brand capital leading to negative risk premium.

We increase the credibility of traditional brand value measures and increase the sample size considerably by replacing Interbrand with more extensive Brand Finance Global 500 and US 500 listings. We find the relationship between the improved brand value measure and monthly stock returns insignificant and attribute the value relevance reported by the prevalent literature to organization capital and leverage, the latter of which have been neglected in the literature.

Last, we do not report any stock market value relevance in the reported brand capital using our high intangible capital measure.

We consider our brand orientation measure as a proxy for strategic weight that firms put on their brand capital. The measure is built on the frequency with which firms speak of brands in their annual reports and we encourage the future researchers to improve the measure. We discuss a potential risk factor that financial researchers have missed and is linked to the concept of brand orientation or brand strength. We bring up brand strength as a potential venue to find ultimate source of brand capital value relevance.