Abstract
Current literature has overlooked the signaling effects of the brand on a firm’s sustainable performance through financial analysts. This study posits that financial analysts may serve as the information bridge connecting brand equity and a firm’s sustainable performance by providing professional recommendations of stock investments to public investors. Using a longitudinal archived dataset of Chinese listed firms, we found that: (1) brand equity improves the level of analysts’ recommendations for a focal firm’s stock, and also reduces the inconsistency of analysts’ recommendations; (2) industrial competition further strengthens the positive impact of brand equity on analysts’ recommendation level and strengthen its negative impact on recommendation inconsistency; (3) analyst recommendations mediate the relationship between brand equity and a firm’s sustainable performance in terms of abnormal return, systematic and idiosyncratic risk. These findings emphasize the importance of financial analysts’ recommendations in influencing the value of brand equity on sustainable firm performance.
Highlights
The way brand equity impacts firm sustainable performance has drawn considerable interest from academic scholars and practitioners [1]
Increasing literature proposes that firm financial performance provides a more systematic and integrative channel to evaluate the value of brand equity [1,4], which directly responds to the investors’ demands of marketing accountability [1,5]
Industrial competition reflects the degree of rivalry in the industry [33]; we argue that industrial competition may influence the effect of brand equity on analyst’ recommendations
Summary
The way brand equity impacts firm sustainable performance has drawn considerable interest from academic scholars and practitioners [1]. Previous literature has shown two major views on how brand equity influences firm sustainable performance: cognitive psychology and signaling theory, the first view, which has been adopted in most empirical brand studies, argues that brand equity can alter customers’ perceptions and preferences if product information is delivered effectively. This view makes an implicit assumption that the market allows product information clearly and fully communicated between firms and their customers [6]. To address these research gaps, this study adopts the signaling theory to empirically examine how brand equity affects firms’ sustainable performance through the recommendations of financial analysts. Our findings provide novel insights into the important role brand equity plays in Sustainability 2019, 11, 1086 the assessment systems of analysts to develop their stock recommendation, and in turn, affect firms’ sustainable performance
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