The Role of Brand Value as a Buffer During Financial Shocks

Abstract

Intangible assets such as brand value have been a widely discussed subject within the academic literature. The difficulty with objectively and accurately estimating brand values have caused it not to be reported on the balance sheet, even though it is often agreed upon that brands hold significant value for firms. To further assess the value-relevance and reliability of brand value estimates, this study uses data from three separate brand valuation methodologies and evaluates the sustainability and durability of brand value. The aim of this study is to examine if brand value can protect and help firms sustain through difficult economic times, such as large financial shocks. The results suggest that brand value helps reduce the amount of volatility in stock returns that firms experience; this holds even during times of extreme volatility, such as a financial crisis. These results support the notion that brand value can play a protective role during economic downturns. Additionally, all three brand value estimates are consistent in their direction and significance, which provides evidence for the value-relevance of brand value estimates. However, the brand value estimates differ in their effect sizes, leaving the question of reliability open for future research.