Author: Ching, Siu-ming Vincent
Title: Brand equity and cost of capital
Degree: D.B.A.
Year: 2008
Subject: Hong Kong Polytechnic University -- Dissertations.
Brand name products -- Valuation.
Business enterprises -- Valuation.
Capital investments.
Credit ratings.
Department: Graduate School of Business
Pages: vi, 135 leaves ; 30 cm.
Language: English
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.
Rights: All rights reserved
Access: restricted access

Files in This Item:
File Description SizeFormat 
b22405999.pdfFor All Users (off-campus access for PolyU Staff & Students only)12.06 MBAdobe PDFView/Open

Copyright Undertaking

As a bona fide Library user, I declare that:

  1. I will abide by the rules and legal ordinances governing copyright regarding the use of the Database.
  2. I will use the Database for the purpose of my research or private study only and not for circulation or further reproduction or any other purpose.
  3. I agree to indemnify and hold the University harmless from and against any loss, damage, cost, liability or expenses arising from copyright infringement or unauthorized usage.

By downloading any item(s) listed above, you acknowledge that you have read and understood the copyright undertaking as stated above, and agree to be bound by all of its terms.

Show full item record

Please use this identifier to cite or link to this item: