|Author:||Ching, Siu-ming Vincent|
|Title:||Brand equity and cost of capital|
|Subject:||Hong Kong Polytechnic University -- Dissertations.|
Brand name products -- Valuation.
Business enterprises -- Valuation.
|Department:||Graduate School of Business|
|Pages:||vi, 135 leaves ; 30 cm.|
|Abstract:||The issue of brand equity has attracted much attention in marketing since the 1980s. The marketing literature has documented substantial evidence that brand equity can bring the following benefits to a company: greater loyalty from customers, less vulnerability to competitive marketing actions, less vulnerability to marketing crises, larger margins, more inelastic customer response to price increases, more elastic consumer response to price decreases, greater trade cooperation and support, increased marketing communication effectiveness, possible licensing opportunities, and additional extension opportunities (Kapferer, 2004). The result of these benefits is that brand equity can create shareholder value by accelerating, enhancing and reducing the volatility and vulnerability of cash flows (Srivastava et al., 1998; Doyle, 2001). Prior studies have documented empirical evidence that brand equity can enhance shareholders value and bring higher investment returns (Aaker and Jacobson, 1994; Barth et al., 1998; Kerin and Sethuraman, 1998; Aaker and Jacobson, 2001; Kim et al., 2003; Fornell et al., 2006; Madden et al., 2006; Mizik and Jacobson, 2008; Yeung and Ramasamy, 2008). While most of the accounting and financial research focuses on the relationship between brand equity and investment returns, research on other accounting and financial implication of brand equity is rare. To the best of my knowledge, my thesis is the first study that empirically investigates whether brand equity is associated with cost of capital. Using US firm-year observations with brand value from Interbrand Corporation from 2000 to 2006, my study documents the following major findings. First, brand equity is negatively related to average annual interest rate. Larger brand equity is also related to more favorable credit rating. These two findings support the argument that brand equity is negatively associated with cost of debt capital. Second, I document a significantly negative association between brand equity and cost of equity capital using four models to compute the ex ante cost of equity capital. In summary, the results of this study indicate that lenders and investors see brand value as providing additional information about the value of the company. This evidence is not available in the extant literature.|
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