The Impact of Brand Rating Dispersion on Firm Value

Abstract

This study examines brand dispersion—variance in brand ratings across consumers—and its role in the translation of brand assets into firm value. Dispersion captures the covert heterogeneity in brand evaluations among consumers who like or dislike the brands, which would affect an investor's decision to buy or sell a stock. The higher the dispersion, the more inconsistent and polarized the brands’ cross-consumer ratings. Multiple analyses on 730,818 brand–day observations provide robust evidence that brand dispersion fluctuations affect stock prices. Brand dispersion has Januslike effects: it harms returns but reduces firm risk. Furthermore, downside dispersion has a stronger impact on abnormal returns than upside dispersion, indicating an asymmetry in brand dispersion's effects. Moreover, dispersion tempers the risk-reduction benefits of higher brand rating in both the short run and long run. Without modeling dispersion, brand rating's impact on firm value can be over- or underestimated. Managers should consider dispersion a vital brand-management metric and add it to the brand-performance dashboard.