Chasing the Fame: Investing in Brand Equity

Abstract

This paper examines the relationship between a firm’s brand equity and its investment value. “Brand equity is defined as the incremental cash flows which accrue to branded products over unbranded products. The estimation technique extracts the value of brand equity from the value of the firm's other assets” (Simon & Sullivan, 1993). This study illustrates how stocks with higher growth of brand equity provide stronger investment value. Conversely, stocks with deteriorating brand equity generally feature lower return potential. An empirical portfolio-strategy is used to demonstrate the assumptions and predicts how to capitalize upon return potential from such a relationship.