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ON THE IMPORTANCE OF BRANDS:
How Analysts Mediate Brand Value’s Impact on Firm Value
UNIVERSITY OF GRONINGEN
FACULTY OF ECONOMICS AND BUSINESS
MASTER THESIS BUSINESS ADMINISTRATION – MARKETING MANAGEMENT
GRONINGEN, 2011
BY
R. M. VAN DER SLOOT (1505432)
In the last couple of years, MSI is requesting researchers to make marketing more accountable. This study aligns to MSI’s request by adding new results to the ongoing discussion about marketing accountabilit
affect dispersion in financial analyst earnings forecas recommendations, and firm return and risk
dispersion grows when brand value research on this topic is necessary
in brand value has a favorable impact on analyst a positive change in brand value
unexpected, and the author pledges for
systematic risk was found, but additional tests showed that lower systematic risk than the average market. Further brand value lower firm-specific ris
Keywords:
Brand value, financial analysts, earnings dispersi
firm value, abnormal return, systematic risk, idiosyncratic ris
Board of Supervisors:
Dr. Thorsten Wiesel of the University of Gr
Dr. Marielle Non of the University of Groningen - ABSTRACT -
of years, MSI is requesting researchers to make marketing more This study aligns to MSI’s request by adding new results to the ongoing discussion about marketing accountability. Specifically, this study focuses on how brands financial analyst earnings forecasts, forecast errors, analyst , and firm return and risk. Based on existing literature was hypothesized that when brand value increases, however this could not be proven and further
is necessary. This study did show that for large brands a positive
a favorable impact on analyst stock recommendations. It did also show that in brand value has a negative impact on abnormal return. The latter result
pledges for further research on this topic. No impact o
additional tests showed that firms with strong brands have a lower systematic risk than the average market. Further, it was found that positive
specific risk.
, financial analysts, earnings dispersion, forecast errors, stock recommendations, firm value, abnormal return, systematic risk, idiosyncratic risk
Dr. Thorsten Wiesel of the University of Groningen
Dr. Marielle Non of the University of Groningen
of years, MSI is requesting researchers to make marketing more This study aligns to MSI’s request by adding new results to the ongoing y. Specifically, this study focuses on how brands forecast errors, analyst Based on existing literature was hypothesized that , however this could not be proven and further positive change It did also show that e latter result is No impact of brands on firms with strong brands have a positive changes in
CONTENT
1. INTRODUCTION ...
2. THEORY ... 2.1. Financial Analysts ...
2.2. Firm Valuation ... 2.3. Future Oriented Data: Brand Values
2.4. Brand Value and Agreement Among Analysts 2.5. Brand Value and Stock Recommendations
2.6. Brand Value, Stock Recommendations, and Firm Value 3. METHODOLOGY ...
3.1. Data ... 3.2. Econometric Model Specification
3.3. Pooling Tests ... 3.4. Validity Tests ... 4. RESULTS ...
4.1. Brand Values and Earnings Forecasts 4.2. The Effect of Brand Value on Dispersion 4.3. The Effect of Brand Value on Forecast Errors
4.4. The Effect of Brand Value on Analyst Recommendations 4.5. The Effect of Brand Value on Firm Value
5. CONCLUSIONS ... 5.1. Discussion ...
5.2. Management Implications ... 5.3. Limitations and Research Directions
REFERENCES ...
APPENDIX A – Descriptive Statistics | Distribution of Key Variables APPENDIX B – Descriptive Statistics | Means
APPENDIX C – Descriptive Statistics | Outliers
APPENDIX D – Descriptive Statistics | Scatter Diagrams APPENDIX E – Full Model Results
APPENDIX F – SAS Code Design ... APPENDIX G – Stock Price Downloader
... ... ... ... 2.3. Future Oriented Data: Brand Values ... 2.4. Brand Value and Agreement Among Analysts ... 2.5. Brand Value and Stock Recommendations ...
2.6. Brand Value, Stock Recommendations, and Firm Value... ...
... 3.2. Econometric Model Specification ...
... ... ... 4.1. Brand Values and Earnings Forecasts ... 4.2. The Effect of Brand Value on Dispersion ...
4.3. The Effect of Brand Value on Forecast Errors ... 4.4. The Effect of Brand Value on Analyst Recommendations ... 4.5. The Effect of Brand Value on Firm Value ...
... ...
... 5.3. Limitations and Research Directions ...
... Descriptive Statistics | Distribution of Key Variables ...
Descriptive Statistics | Means ... Descriptive Statistics | Outliers ...
Descriptive Statistics | Scatter Diagrams ... Full Model Results ...
... Stock Price Downloader ...
1. INTRODUCTION
Corporate management’s ultimate goal is to increase shareholder value. However, what is the best way to increase shareholder value? It seems that many firms do not seek the answer at the marketing department. Research of Verhoef & Leeflang (2009) shows tha
and more seen as a cost instead
discussion about the accountability of marketing, brands on financial analysts and firm valu
When looking at the main goal of value as well, and thus marketing investigate the value of marketing, the accountability of marketing actions
marketing academics studied various aspects of the relation between marketing and firm shareholder value in the last decade
Srinivasan & Hanssens, 2009; Luo et al., 2010 done towards the effect of brands
Morgan et al., 2009). The importance of these studies are that they in essence validate the presumption that marketing departments, t
a firm and directly or indirectly contribute to firm
What gap does this study fill when taking existing literature into account? To question, a brief introduction of
many authors researched how marketing and more specifically b value. In 1998, Barth et al. showed that brand
returns. They did this by comparing the return of stocks of firms with high brand values, with stocks of comparable firms with low brand values.
result as Barth et al. (1998), namely that brands have a positive effect on the returns of a firm its stock, and that brands also lower the risk of the corresponding st
the findings of Morgan et al. (2009), businesses. These studies indicate
value. What has not been done though, is studying the effect that market with respect to financial analys
understand why it is important to study the effect of brands on financial analysts, an overview is given on what financial analysts are and what their role is in the financial marke
Corporate management’s ultimate goal is to increase shareholder value. However, what is the best way to increase shareholder value? It seems that many firms do not seek the answer at the marketing department. Research of Verhoef & Leeflang (2009) shows that marketing is more and more seen as a cost instead as an investment. This study contributes to the ongoing discussion about the accountability of marketing, by specifically looking at the
firm value.
When looking at the main goal of a firm, marketing activities should contribute to sh marketing expenditures should be an investment rather than a cost. investigate the value of marketing, MSI is since 2004 pressing marketing scholars to
marketing actions (“Marketing Science Institute”, 2004).
marketing academics studied various aspects of the relation between marketing and firm in the last decade (Lehmann, 2004; Rust et al., 2004; Madden et al., 2006;
, 2009; Luo et al., 2010). Research related to the current study has been brands on firm- and shareholder value (e.g., Madden et al., 2006 ). The importance of these studies are that they in essence validate the tion that marketing departments, their actions and their deliverables, are valuable for
contribute to firm- and shareholder value.
when taking existing literature into account? To introduction of the current literature is given. Above is shown
how marketing and more specifically brands contribute to , Barth et al. showed that brands significantly affect stock prices and stock They did this by comparing the return of stocks of firms with high brand values, with firms with low brand values. Madden et al. (2006) showed a similar namely that brands have a positive effect on the returns of a firm that brands also lower the risk of the corresponding stock. In that same line are Morgan et al. (2009), who found that brands explicitly generate revenue for businesses. These studies indicate the positive effects brands have on firm- and shareholder ue. What has not been done though, is studying the effect that brands have on the financial
financial analysts. This is the gap this study wants to fill. understand why it is important to study the effect of brands on financial analysts, an overview is given on what financial analysts are and what their role is in the financial marke
Corporate management’s ultimate goal is to increase shareholder value. However, what is the best way to increase shareholder value? It seems that many firms do not seek the answer at the t marketing is more t. This study contributes to the ongoing the impact of
should contribute to shareholder investment rather than a cost. To eting scholars to research ). As a result, marketing academics studied various aspects of the relation between marketing and firm- and , 2004; Rust et al., 2004; Madden et al., 2006; related to the current study has been value (e.g., Madden et al., 2006; ). The importance of these studies are that they in essence validate the are valuable for
Financial analysts are middleme
financial information of firms, disclosed information as well as private information, and are seen as representatives of the financial community (Revsine et al., 2008).
knowledge, financial analysts make predictions of the profitability of give recommendations to investors to buy, hold
their decisions to invest or disinvest
of financial analysts (DellaVigna & Gentzkow, 2009). Hence, financial analysts have an important impact on the stock price and thus shareholder
It is important to study the effect
the influence that analyst predictions and recommendations have on a firm’s stock. this, Womack (1996) not only found that movements in stock prices
influence of financial analysts, but that this also affect studies investigated the direct link between brands and firm
study focuses on if brands affect financial analyst forecasts and recommendatio
financial analysts with their influence on investors mediate the relation between brands and firm value. The importance of financial analysts on the financial market has not been unnoticed in the academic world
marketing-finance interface have researched the impact of intangible assets on financial analysts. For example, Barron et al. (2002) found that
negatively correlated with the lev
found that customer satisfaction is positively related to analyst stock recommendation another study, Luo & de Jong (2010) showed that the effect of
stock return and risk is partially mediated by financial analysts. observed that in some cases analysts ignore
estimations. In addition to these studies analysts, the current study focuses on how recommendations, and how this affects
As shown earlier, the studies of Barth et al. (1998) and Madden et al. (2006) show that brands affect stock return and risk. Second, financial analysts take intangible assets into account in their valuation process (Barron et al., 2002). With brands being one of the most important intangible assets of a firm (Keller & Lehmann, 2006), this leads to the assu
basis of this study, namely: brands affect the earnings forecasts and recommendations of financial analysts, and thereby firm return and risk
Financial analysts are middlemen and stand between firms and investors. They analyze financial information of firms, disclosed information as well as private information, and are seen as representatives of the financial community (Revsine et al., 2008). Based on their
make predictions of the profitability of stock listed
give recommendations to investors to buy, hold, or sell certain stocks. Many investors make disinvest in a firm based on the predictions and recommendations (DellaVigna & Gentzkow, 2009). Hence, financial analysts have an important impact on the stock price and thus shareholder value of a firm (Womack, 1996).
It is important to study the effect of brands on these financial analyst deliverables, because of predictions and recommendations have on a firm’s stock.
omack (1996) not only found that movements in stock prices occur ancial analysts, but that this also affects the financial health of a f
studies investigated the direct link between brands and firm- and shareholder value. Current study focuses on if brands affect financial analyst forecasts and recommendatio
financial analysts with their influence on investors mediate the relation between brands and e. The importance of financial analysts on the financial market has not been in the academic world. Recently, multiple finance studies, and studies within the finance interface have researched the impact of intangible assets on financial Barron et al. (2002) found that consensus among financial analysts is negatively correlated with the level of intangible assets possessed by a firm. Luo et al. (2010) found that customer satisfaction is positively related to analyst stock recommendation
(2010) showed that the effect of advertising expenditures n and risk is partially mediated by financial analysts. Kim & McAlister
that in some cases analysts ignore advertising expenditures in their firm value In addition to these studies towards marketing actions and the effect on fi
the current study focuses on how brands affect financial analyst forecasts and recommendations, and how this affects total firm value.
As shown earlier, the studies of Barth et al. (1998) and Madden et al. (2006) show that brands stock return and risk. Second, financial analysts take intangible assets into account in their valuation process (Barron et al., 2002). With brands being one of the most important intangible assets of a firm (Keller & Lehmann, 2006), this leads to the assumption that is the basis of this study, namely: brands affect the earnings forecasts and recommendations of
, and thereby firm return and risk.
n and stand between firms and investors. They analyze financial information of firms, disclosed information as well as private information, and are Based on their stock listed firms, and Many investors make based on the predictions and recommendations (DellaVigna & Gentzkow, 2009). Hence, financial analysts have an
value of a firm (Womack, 1996).
financial analyst deliverables, because of predictions and recommendations have on a firm’s stock. To stress occur through the the financial health of a firm. Earlier and shareholder value. Current study focuses on if brands affect financial analyst forecasts and recommendations, and if financial analysts with their influence on investors mediate the relation between brands and e. The importance of financial analysts on the financial market has not been finance studies, and studies within the finance interface have researched the impact of intangible assets on financial consensus among financial analysts is el of intangible assets possessed by a firm. Luo et al. (2010) found that customer satisfaction is positively related to analyst stock recommendations. In expenditures on Kim & McAlister (2011) expenditures in their firm value towards marketing actions and the effect on financial financial analyst forecasts and
What is the importance of studying recommendations? Madden et al. (2006) found risk of a firm’s stock in a positive manner.
effect on the cost of capital (Botosan & Plumlee, 2005) importance to top-management. This is because the investments can be done in e.g. new product
the return and risk of a firm is affected by the influence of brands on financial analysts. Hence, top-management can decide to communicate the value of brands more to financial analysts, since in the end financial analysts influence stock return and r
capital. For marketing management
important to know. When brands affect financial analysts, increase the focus on brand value creation
brand towards financial analysts and investors opportunity to step forward and fulfill this
investors about the firm’s brand value and brand strategy marketing department is likely to have the best
while they are the people that develop the brands, and communicating messages to the outside worl
marketing department. Third, this study provides firm- and shareholder value.
A slightly different view on why this st for other managers in the firm, is that
stock performance (Brennan & Hughes, 1991). For management it is therefore important to know if and how brands affect
influences their bonus packages.
Not only for management this study is of importance, also for financial analyst be of help. Insights that this study hopes to give, show
analysts on how to incorporate brands in financial evaluations. Another hopes to give is if brands have an effect on
importance to the financial sector
financial analysts. In the end, unaccurate forecasts can even analysts (Hong & Kubik, 2003).
the importance of studying the effect of brands on analyst forecasts and Madden et al. (2006) found in their study that brands affect the return and risk of a firm’s stock in a positive manner. Since the return and risk of a firm also
effect on the cost of capital (Botosan & Plumlee, 2005), this should be of
. This is because the lower the cost of capital the more investments can be done in e.g. new product development. In the current study is
the return and risk of a firm is affected by the influence of brands on financial analysts. management can decide to communicate the value of brands more to financial analysts, since in the end financial analysts influence stock return and risk, and thereby cost of For marketing management the relation between brands and financial analysts is also brands affect financial analysts, top-management can decide to increase the focus on brand value creation, and increase the communication of the
towards financial analysts and investors. This gives the marketing department o step forward and fulfill this responsible position, to inform analyst about the firm’s brand value and brand strategy. More than other department
is likely to have the best skill set to inform analysts and investors, while they are the people that develop the brands, and have a lot of experience w communicating messages to the outside world. Hence, this means more responsibilit
, this study provides general insights into how brands influence
A slightly different view on why this study is important for marketing management
, is that many firms allocate bonuses to their managers based on (Brennan & Hughes, 1991). For management it is therefore important to
brands affect financial evaluations of financial analysts
Not only for management this study is of importance, also for financial analysts this study can be of help. Insights that this study hopes to give, show if there is consensus among financial analysts on how to incorporate brands in financial evaluations. Another result that this
have an effect on forecast errors of financial analysts. This is of sector, while less accurate forecasts result in less credibility of
, unaccurate forecasts can even harm the reputation of financial analyst forecasts and that brands affect the return and return and risk of a firm also have an of strategically lower the cost of capital the more In the current study is analyzed if the return and risk of a firm is affected by the influence of brands on financial analysts. management can decide to communicate the value of brands more to financial isk, and thereby cost of the relation between brands and financial analysts is also can decide to of the value of the the marketing department the to inform analysts and More than other departments, the analysts and investors, experience with more responsibility for the into how brands influence
management, but also to their managers based on (Brennan & Hughes, 1991). For management it is therefore important to of financial analysts, while this
Currently there is no research available
brands affect financial analyst forecasts and recommendations, and how mediate the relationship between brand value and
literature by investigating (1) if the expected earnings of a firm, (2) if financial analyst stock recommendations between brands and firm value.
To visualize the research issues of this study, Figure 1.1 study.
Figure 1.1 – Conceptual model and final study results
2. THEORY
This study tries to assess the relationship between brand value and
financial analysts mediate this relation. To understand the importance of this study, a couple of concepts need to be explained. These concepts are financial a
brand values. These concepts form the theoretical framework of this paper and its purpose is to give a better understanding of how brand value might influence financial analyst
and recommendations and thereby
Currently there is no research available, that the author is aware of, that investigates how brands affect financial analyst forecasts and recommendations, and how financial analysts the relationship between brand value and firm value. This study will fill this gap in igating (1) if brands affect the agreement among financial analysts about
, (2) if brands cause higher forecast errors, (3) if financial analyst stock recommendations, and (4) if financial analysts mediate the r
To visualize the research issues of this study, Figure 1.1 shows the conceptual model of this
del and final study results
This study tries to assess the relationship between brand value and firm return and risk, financial analysts mediate this relation. To understand the importance of this study, a couple of concepts need to be explained. These concepts are financial analysts, firm valuation, and brand values. These concepts form the theoretical framework of this paper and its purpose is to give a better understanding of how brand value might influence financial analyst
recommendations and thereby firm value.
that the author is aware of, that investigates how financial analysts . This study will fill this gap in the agreement among financial analysts about , (3) if brands affect , and (4) if financial analysts mediate the relationship
shows the conceptual model of this
2.1. Financial Analysts
In short, financial analysts are people that analyze financial information of firms. Based upon their analyses, they advise investors to invest in a certain company or not (Revsine et al., 2008). Their recommendations are based
private information like conversations with CEO’s and CFO’s (Chen & Matsumoto, 2006). By providing forecasts about the earnings per share (EPS), and giving recommendations to buy, sell, or hold company share
part of the financial community (Lang & Lundholm, 1996).
The recommendation function of buy/sell/hold their company shares
the key role financial analysts play in the formation of firm stock prices. This key role is supported by empirical evidence of Womack (1996) that showed that recommendations of financial analysts can create movements
financial health of a firm. Many i
predictions of financial analysts, and base their investment analyst forecasts and recommendations
underlines the findings of Womack (1996) by showing that firms recommended by an are rewarded by investors.
These studies show that analyst
end affect the cost of capital for a firm (Botosan & Plumlee, 2005). Hence, it is importance for a firm to be evaluated in a correct
intangible assets are taken into account by financial analysts.
In the next section is further explained what the importance financial analysts.
2.2. Firm Valuation
Basically, there are three states in the valuation of a firm. First, a firm can
Second, a firm can be overvalued. And third, in an ideal world, a firm is precisely valued what it is worth. The valuation of analysts have an impact on stock price, while many investors make their investment decisions based on recommendati
2009). However, literature shows that analysts not always incorporate intangible assets in their firm valuations (Dempsey et al., 1997; Amir et al., 2003),
firm becomes undervalued because of th
In short, financial analysts are people that analyze financial information of firms. Based upon their analyses, they advise investors to invest in a certain company or not (Revsine et al., 2008). Their recommendations are based upon publicly available information, but also on private information like conversations with CEO’s and CFO’s (Chen & Matsumoto, 2006). By providing forecasts about the earnings per share (EPS), and giving recommendations to buy, sell, or hold company shares to investors and brokers, financial analysts are an integral part of the financial community (Lang & Lundholm, 1996).
The recommendation function of financial analysts is that they advise
buy/sell/hold their company shares. Many investors follow these recommendations, indicating play in the formation of firm stock prices. This key role is supported by empirical evidence of Womack (1996) that showed that recommendations of
create movements in stock price, and that these movements
Many investors are influenced by the recommendations and predictions of financial analysts, and base their investment decisions fully or partially on analyst forecasts and recommendations (Womack, 1996). Research of Murphy (2009) underlines the findings of Womack (1996) by showing that firms recommended by an
analyst valuations have an impact on shareholder value, and in the the cost of capital for a firm (Botosan & Plumlee, 2005). Hence, it is
evaluated in a correct manner, and that all their tangible and account by financial analysts.
explained what the importance is of correct firm valuation by
Basically, there are three states in the valuation of a firm. First, a firm can be undervalued. Second, a firm can be overvalued. And third, in an ideal world, a firm is precisely valued what it is worth. The valuation of analysts have an impact on stock price, while many investors make their investment decisions based on recommendations of financial analysts (Murphy, literature shows that analysts not always incorporate intangible assets in their firm valuations (Dempsey et al., 1997; Amir et al., 2003), and hence the risk
because of this exclusion of value possessing intangible assets. In short, financial analysts are people that analyze financial information of firms. Based upon their analyses, they advise investors to invest in a certain company or not (Revsine et al., upon publicly available information, but also on private information like conversations with CEO’s and CFO’s (Chen & Matsumoto, 2006). By providing forecasts about the earnings per share (EPS), and giving recommendations to s to investors and brokers, financial analysts are an integral
is that they advise investors to llow these recommendations, indicating play in the formation of firm stock prices. This key role is supported by empirical evidence of Womack (1996) that showed that recommendations of in stock price, and that these movements affect the are influenced by the recommendations and fully or partially on (Womack, 1996). Research of Murphy (2009) underlines the findings of Womack (1996) by showing that firms recommended by analysts
an impact on shareholder value, and in the the cost of capital for a firm (Botosan & Plumlee, 2005). Hence, it is of utterly all their tangible and
is of correct firm valuation by
In some rare cases it might be attractive for a firm to be undervalued, this is in case the firm wants to buy back its shares (D’Mello & Shroff, 2000). However, in most cases undervaluation is not beneficial for a firm
the financial position of a firm by decreasing stock price Plumlee (2005) showed this empirically
negatively affected by analyst
recommendations the better the access to funds, and the lower the recommendations the more difficult the funding is. Similarly, Richardson et al. (2004) found that access to
affected by the recommendations and forecasts of analysts. increasing unease with funding gen
firm. It can block business initiatives, like new product too high and no funds are readily
can in the end lead to decisions to not invest in new business opportunities. This can harm the future growth of the company, and thereby also the return for investors on the long run.
A more general reason for managers throughout the company
valuation by financial analysts, is that the performance of managers in many companies is evaluated by the height of the
undervaluation of the firm, the stock
and managers get less bonus than they deserve.
further, while the results of important marketing actions like branding are difficult to express in economic terms (Stewart, 2009). Thus, the risk arises that financial analysts do not know how to value marketing deliverables like brands and customer satisfaction scores.
Stewart (2009) for the development of economic metrics for measuring marketing actions, is likely to benefit marketing managers in showing the true value of brands to top
and to financial analysts. However, the goal of this study is for brands, but this study uses the econometric brand metric as if it affects the valuations of financial analysts and thereby firm value.
2.3. Future Oriented Data: Brand Values
Why brand values should be included in financial analysts’ firm value calculations
Chapter 2.2. shows the importance of a correct valuation of a firm. The remaining question is, what assets to include in a valuation. For example, should next to tangible assets also intangible assets be incorporated in the valuation of a firm? With a brand being one of the In some rare cases it might be attractive for a firm to be undervalued, this is in case the firm wants to buy back its shares (D’Mello & Shroff, 2000). However, in most cases
is not beneficial for a firm. One reason for this is that undervaluation harm the financial position of a firm by decreasing stock price (Womack, 1996). Botosan &
lee (2005) showed this empirically. They found that access to funds is positively and ely affected by analyst forecasts and recommendations, thus the higher the recommendations the better the access to funds, and the lower the recommendations the more
. Similarly, Richardson et al. (2004) found that access to
affected by the recommendations and forecasts of analysts. Higher cost of capital, and the unease with funding general business activities, harms the financial health of firm. It can block business initiatives, like new product launches, because the cost
readily available. In this case, undervaluation by financial analysts lead to decisions to not invest in new business opportunities. This can harm the
mpany, and thereby also the return for investors on the long run.
managers throughout the company to strive for correct firm valuation by financial analysts, is that the performance of managers in many companies is the stock price (Brennan & Hughes, 1991). In case of undervaluation of the firm, the stock-price-coupled compensation package becomes lower, and managers get less bonus than they deserve. For marketing management this goes even he results of important marketing actions like branding are difficult to express in economic terms (Stewart, 2009). Thus, the risk arises that financial analysts do not know how to value marketing deliverables like brands and customer satisfaction scores.
Stewart (2009) for the development of economic metrics for measuring marketing actions, is likely to benefit marketing managers in showing the true value of brands to top
However, the goal of this study is not to develop a financial measure this study uses the econometric brand metric as developed by Interbrand to see if it affects the valuations of financial analysts and thereby firm value.
2.3. Future Oriented Data: Brand Values
alues should be included in financial analysts’ firm value calculations
Chapter 2.2. shows the importance of a correct valuation of a firm. The remaining question is, what assets to include in a valuation. For example, should next to tangible assets also ntangible assets be incorporated in the valuation of a firm? With a brand being one of the In some rare cases it might be attractive for a firm to be undervalued, this is in case the firm wants to buy back its shares (D’Mello & Shroff, 2000). However, in most cases an is that undervaluation harms (Womack, 1996). Botosan & hey found that access to funds is positively and , thus the higher the recommendations the better the access to funds, and the lower the recommendations the more . Similarly, Richardson et al. (2004) found that access to funds is capital, and the harms the financial health of a the cost of capital is available. In this case, undervaluation by financial analysts lead to decisions to not invest in new business opportunities. This can harm the
mpany, and thereby also the return for investors on the long run.
to strive for correct firm valuation by financial analysts, is that the performance of managers in many companies is stock price (Brennan & Hughes, 1991). In case of coupled compensation package becomes lower, For marketing management this goes even he results of important marketing actions like branding are difficult to express in economic terms (Stewart, 2009). Thus, the risk arises that financial analysts do not know how to value marketing deliverables like brands and customer satisfaction scores. The call of Stewart (2009) for the development of economic metrics for measuring marketing actions, is likely to benefit marketing managers in showing the true value of brands to top-management not to develop a financial measure by Interbrand to see
alues should be included in financial analysts’ firm value calculations
most important intangible assets of a firm (Keller & Lehmann, 2006), a closer look is taken at why specifically brands should be incorporated in financial firm valua
currently done.
First, why should brands be evaluated by financial analysts? According to a report of the International Accounting Standards Board (IASB) about the future of financial reporting (IASB, 2005), firms should provide invest
and with an analysis of the firm ‘through the eyes of management’. In line with the IASB’s report (2005), the author poses that brand values should be included in financial reports and should be made clear to financial analysts as well. This is because brands, although they are intangible, posses value for a firm by positively affecting the attitude and purchase behavior of customers. This behavior leads to higher firm performance now and in the future (K 1993; Netemeyer et al., 2004). Brands are important revenue generators for businesses (Morgan et al., 2009) and hence they represent value for a firm. Therefore, when analysts leave brands out of their firm valuation, it me
important intangible asset of a firm advertising expenditures can be used
used advertising expenses as a proxy for marketing did find
McAlister, 2011), so the use of advertising expenditures as a proxy is questionable. Second, using advertising expenditures as a proxy for marketing
taken into account, but also other marketing act value through advertising, but also through side
2008). Hence, when excluding brand values in their calculations, full potential of a business and earnings predictions are expected to earnings. When including brand values
informed recommendations are being
positive recommendations about the firm are
investments are made in the focal firm. This closes the gap between the true value of a firm and its market value.
Second, are brands currently evaluated by financial analysts? Research of Barth et al. (2001) shows that financial analysts are examining intangible assets in their valuation process. Especially firms with large R&D or
assets, get significant more coverage from financial analysts. As simple as it might sound to include brands in firm valuation, the truth is that financial analysts have difficulties in getting most important intangible assets of a firm (Keller & Lehmann, 2006), a closer look is taken at brands should be incorporated in financial firm valuation, and if this is
First, why should brands be evaluated by financial analysts? According to a report of the International Accounting Standards Board (IASB) about the future of financial reporting (IASB, 2005), firms should provide investors and financial analysts with future oriented data and with an analysis of the firm ‘through the eyes of management’. In line with the IASB’s report (2005), the author poses that brand values should be included in financial reports and ar to financial analysts as well. This is because brands, although they are intangible, posses value for a firm by positively affecting the attitude and purchase behavior of customers. This behavior leads to higher firm performance now and in the future (K 1993; Netemeyer et al., 2004). Brands are important revenue generators for businesses (Morgan et al., 2009) and hence they represent value for a firm. Therefore, when analysts leave brands out of their firm valuation, it means that they are not including t
of a firm (Keller & Lehman, 2006). One could argue that can be used as a proxy for brand value. However, several
as a proxy for marketing did find opposing results (
, 2011), so the use of advertising expenditures as a proxy is questionable. Second, using advertising expenditures as a proxy for marketing implies that not only
into account, but also other marketing activities. Third, brands are not only growing in value through advertising, but also through side-effects like e.g. word-of-mout
when excluding brand values in their calculations, analysts will not explore the business and earnings predictions are expected to be lower than the actual . When including brand values on the other hand, it can be expected that better
being made. Meaning that in case of high brand values, more itive recommendations about the firm are expected to be made by analysts, and more investments are made in the focal firm. This closes the gap between the true value of a firm
Second, are brands currently evaluated by financial analysts? Research of Barth et al. (2001) shows that financial analysts are examining intangible assets in their valuation process. Especially firms with large R&D or advertising expenditures, both investments in intangible assets, get significant more coverage from financial analysts. As simple as it might sound to include brands in firm valuation, the truth is that financial analysts have difficulties in getting most important intangible assets of a firm (Keller & Lehmann, 2006), a closer look is taken at tion, and if this is
First, why should brands be evaluated by financial analysts? According to a report of the International Accounting Standards Board (IASB) about the future of financial reporting ors and financial analysts with future oriented data and with an analysis of the firm ‘through the eyes of management’. In line with the IASB’s report (2005), the author poses that brand values should be included in financial reports and ar to financial analysts as well. This is because brands, although they are intangible, posses value for a firm by positively affecting the attitude and purchase behavior of customers. This behavior leads to higher firm performance now and in the future (Keller, 1993; Netemeyer et al., 2004). Brands are important revenue generators for businesses (Morgan et al., 2009) and hence they represent value for a firm. Therefore, when analysts including the most (Keller & Lehman, 2006). One could argue that several studies that opposing results (Kim & , 2011), so the use of advertising expenditures as a proxy is questionable. Second, implies that not only branding is are not only growing in mouth (East et al., analysts will not explore the than the actual on the other hand, it can be expected that
better-brand values, more made by analysts, and more investments are made in the focal firm. This closes the gap between the true value of a firm
agreement with each other about the value
brands being one of these intangible assets, the danger rises that incorporated in the firm valuation, resulting
undervalued.
Analysts experience difficulties
2002), this shows that there is discussion among financial
intangibles correctly. This is an important issue to address, not only for firm
financial analysts. Not using certain (intangible) assets in calculations, or possible misevaluation of assets, results in financial analysts giving faulty recommendations. This does not only harm firms, but it also harms the good reputation of financ
Kubik, 2003). To verify analysts having
goals of this study is to see if dispersion in earnings forecasts value grows larger.
Concluding, brands add value to
Netemeyer et al., 2004; Keller & Lehmann, 2006; Madden et al., 200
and financial analysts see the importance of including intangible assets and try to include them in their firm valuations (Barth et al., 2001; Barron et al., 2002).
This study contributes to the field of marketing related to brands, financial analysts, and firm value. issues and the corresponding hypotheses are introduced.
2.4. Brand Value and Agreement Among Analysts
Financial analysts make forecasts about the potential profitability of a firm, and base their recommendations on these forecasts. Making forecasts is a delicate proces
of business relevant information needs to be included. Evident is that the quality of information is crucial for the forecasting process. The lower the information quality, the higher the uncertainty in the information environment
shows in his study that the greater the uncertainty, the more room there is for bias
earnings forecasts and stock recommendations. Thus, the harder it is to get accurate information about firm’s fundamentals, the lar
about the value of a firm.
agreement with each other about the value of intangible assets (Barron et al., 2002). being one of these intangible assets, the danger rises that brands are incorporated in the firm valuation, resulting that firms with large brands
difficulties with setting standards for intangible assets (Barron et al., shows that there is discussion among financial professionals on how to evaluate correctly. This is an important issue to address, not only for firms
financial analysts. Not using certain (intangible) assets in calculations, or possible misevaluation of assets, results in financial analysts giving faulty recommendations. This does not only harm firms, but it also harms the good reputation of financial analysts (Hong & Kubik, 2003). To verify analysts having disagreement about how to value brands, one of the goals of this study is to see if dispersion in earnings forecasts becomes higher when brand
Concluding, brands add value to a firm and thereby to shareholder value (Keller, 1993; Netemeyer et al., 2004; Keller & Lehmann, 2006; Madden et al., 2006; Morgan et al., 2009), and financial analysts see the importance of including intangible assets and try to include
valuations (Barth et al., 2001; Barron et al., 2002).
his study contributes to the field of marketing and finance, by investigating multiple issues related to brands, financial analysts, and firm value. In the next paragraphs, the research
corresponding hypotheses are introduced.
2.4. Brand Value and Agreement Among Analysts
Financial analysts make forecasts about the potential profitability of a firm, and base their recommendations on these forecasts. Making forecasts is a delicate process in which all kind of business relevant information needs to be included. Evident is that the quality of information is crucial for the forecasting process. The lower the information quality, the higher the uncertainty in the information environment (Zhang, 2006). Hirshleifer (2001) shows in his study that the greater the uncertainty, the more room there is for bias
forecasts and stock recommendations. Thus, the harder it is to get accurate information about firm’s fundamentals, the larger the disagreement among financial analysts of intangible assets (Barron et al., 2002). With brands are not fully with large brands are being
le assets (Barron et al., how to evaluate s, but also for financial analysts. Not using certain (intangible) assets in calculations, or possible misevaluation of assets, results in financial analysts giving faulty recommendations. This does ial analysts (Hong & brands, one of the becomes higher when brand
a firm and thereby to shareholder value (Keller, 1993; ; Morgan et al., 2009), and financial analysts see the importance of including intangible assets and try to include
, by investigating multiple issues In the next paragraphs, the research
Next to the research of Hirshleifer (2001), several other academics have studied how uncertainty in the information environment affects financial analysts. These studies show that financial analysts not always include all the
models. This bias causes differences in recommendations, forecasts errors, and dispersion in earnings forecasts among financial analysts (Abarbanell & Bernard, 1992
Bushee, 1997; Amir et al., 2003). Bias is driven by uncertainty in the information environment (Hirshleifer, 2001), hence differences in recommendations and forecasts are expected to be larger when the information uncertainty becomes larger
What kind of firm fundamentals cause information uncertainty and are drivers of bias? According to Easton & Jarrell (1998), especially non
firm performance are difficult to assess. They found that this is t
difficulty to interpret them and the limited amount of information available. Examples of such firm fundamentals are brand value
about these fundamentals are publicly available
that it is hard for financial analysts to incorporate them in their predictions
1998). This is due to the fact that there are no strict guidelines on how to assess intangible assets. Currently no standards exist on how to use non
and customer satisfaction scores Jaworski, 2007; McKinsey, 2009).
Brands belong to the most important intangibles possessed by a firm (Keller & Lehmann, 2006), but they are also non-financial factors that have impact on the financial performance of the firm (e.g., Srivastava et al., 1998). Thus, according to literature,
uncertainty in the information environment, and thereby grow the disagreement among financial analysts on how to value the focal firm. This uncertainty leads some analysts to base their predictions on traditional financial measures, as
the other hand, another group of financial analysts turn to private information and use idiosyncratic methods to incorporate intangible assets (e.g., brands) in their recommendations and predictions (Blair & Wallman,
brand, and the larger the change
environment, and the more agreement among financial analysts will diminish. Thus, hypothesizing that:
Next to the research of Hirshleifer (2001), several other academics have studied how uncertainty in the information environment affects financial analysts. These studies show that
ancial analysts not always include all the readily available information in their
. This bias causes differences in recommendations, forecasts errors, and dispersion in earnings forecasts among financial analysts (Abarbanell & Bernard, 1992; Abarbanell & Bushee, 1997; Amir et al., 2003). Bias is driven by uncertainty in the information environment (Hirshleifer, 2001), hence differences in recommendations and forecasts are expected to be larger when the information uncertainty becomes larger as well.
What kind of firm fundamentals cause information uncertainty and are drivers of bias? According to Easton & Jarrell (1998), especially non-financial factors that do have impact on firm performance are difficult to assess. They found that this is the case because of the difficulty to interpret them and the limited amount of information available. Examples of such firm fundamentals are brand values and customer satisfaction scores. Although information about these fundamentals are publicly available for most largest public firms, research shows that it is hard for financial analysts to incorporate them in their predictions (Easton & Jarrell, 1998). This is due to the fact that there are no strict guidelines on how to assess intangible
no standards exist on how to use non-financial information, like
scores, in quantitative financial analysis (Orlitzky et al., 2003; Jaworski, 2007; McKinsey, 2009).
Brands belong to the most important intangibles possessed by a firm (Keller & Lehmann, financial factors that have impact on the financial performance of the firm (e.g., Srivastava et al., 1998). Thus, according to literature, brands cause higher uncertainty in the information environment, and thereby grow the disagreement among financial analysts on how to value the focal firm. This uncertainty leads some analysts to base their predictions on traditional financial measures, as was found by Dempsey et al. (1997). On the other hand, another group of financial analysts turn to private information and use idiosyncratic methods to incorporate intangible assets (e.g., brands) in their recommendations and predictions (Blair & Wallman, 2000; Barron et al., 2002). Subsequently, the larger a and the larger the change in brand value, the higher the uncertainty in the information environment, and the more agreement among financial analysts will diminish. Thus, Next to the research of Hirshleifer (2001), several other academics have studied how uncertainty in the information environment affects financial analysts. These studies show that in their valuation . This bias causes differences in recommendations, forecasts errors, and dispersion in ; Abarbanell & Bushee, 1997; Amir et al., 2003). Bias is driven by uncertainty in the information environment (Hirshleifer, 2001), hence differences in recommendations and forecasts are
What kind of firm fundamentals cause information uncertainty and are drivers of bias? financial factors that do have impact on he case because of the difficulty to interpret them and the limited amount of information available. Examples of such and customer satisfaction scores. Although information firms, research shows (Easton & Jarrell, 1998). This is due to the fact that there are no strict guidelines on how to assess intangible financial information, like brand values (Orlitzky et al., 2003;
H1: The higher the level of a firm’s brand value, the higher the dispersion in financial analyst
earnings forecasts.
H2: Positive changes in a firm’s brand value
analyst earnings forecasts.
In addition to dispersion, it is also hypothesized that change in brand value, the less accurate
on the results of Dempsey et al. (1997), who found th analysts only use traditional financial measures in their exclusion of less traditional measures
of the earnings per share that is
2003). The author hypothesizes that the exclusion of non underestimation of the actual earnings per share, and that t higher forecast errors. Thus, hypothesizing that:
H3: The higher the level of a firm’s brand value, the higher the
earnings forecasts.
H4: Positive changes in a firm’s brand value ha
analyst earnings forecasts.
2.5. Brand Value and Stock Recommendations
Next to earnings per share forecasts, financial analysts provide investors with the advise to buy, sell, or hold shares of stock listed companies. These recommendations are based on the expected cash flows of a firm (Womack, 1996; Chen & Matsumoto, 2006). Do brands affect future cash flows? Morgan et al. (2009) provide evidence that firms with strong brands generate higher revenue on the long term compared to companies with a weaker brand. Good brand management can create and maintain awareness among current and potential customers, and lowers the overall risk perception and search costs for these
1996; Berthon et al., 1999). For the firm, this leads to attracting new customers, and a churn rate of the customer base (Mela et al., 1997; McAlister et al., 2007). By attracting new customers and getting a lower churn rate, a brand increases the current and future revenue growth and profitability. Slotegraaf & Pauwels (2008) also found
high equity brands, has a higher impact on long
The higher the level of a firm’s brand value, the higher the dispersion in financial analyst
Positive changes in a firm’s brand value, positively influence dispersion in financial
on, it is also hypothesized that the larger a brand, and the larger the ccurate earnings forecasts will be. This is hypothesized based on the results of Dempsey et al. (1997), who found that in order to reduce uncertainty,
analysts only use traditional financial measures in their prediction and valuation exclusion of less traditional measures, like brand values, is expected to lead to of the earnings per share that is different from the actual earnings per share
The author hypothesizes that the exclusion of non-traditional measures will result in an underestimation of the actual earnings per share, and that this underestimation
hus, hypothesizing that:
The higher the level of a firm’s brand value, the higher the forecast error
Positive changes in a firm’s brand value have a positive effect on forecast errors
2.5. Brand Value and Stock Recommendations
Next to earnings per share forecasts, financial analysts provide investors with the advise to buy, sell, or hold shares of stock listed companies. These recommendations are based on the a firm (Womack, 1996; Chen & Matsumoto, 2006). Do brands affect future cash flows? Morgan et al. (2009) provide evidence that firms with strong brands generate higher revenue on the long term compared to companies with a weaker brand. Good can create and maintain awareness among current and potential customers, and lowers the overall risk perception and search costs for these customers (Hulland et al.,
on et al., 1999). For the firm, this leads to attracting new customers, and a churn rate of the customer base (Mela et al., 1997; McAlister et al., 2007). By attracting new customers and getting a lower churn rate, a brand increases the current and future revenue growth and profitability. Slotegraaf & Pauwels (2008) also found that a promotion done for high equity brands, has a higher impact on long-term sales than a similar promotion for low
The higher the level of a firm’s brand value, the higher the dispersion in financial analyst
positively influence dispersion in financial
the larger a brand, and the larger the forecasts will be. This is hypothesized based at in order to reduce uncertainty, certain and valuation models. The brand values, is expected to lead to an estimation (Amir et al., traditional measures will result in an his underestimation will result in
forecast errors in analyst
a positive effect on forecast errors in
equity brands. In general, strong brands significantly contribute to total firm value (Aaker & Jacobson, 1994).
Most important when investing money
2008). The two figures return and risk are interrelated. The higher the risk, the higher the return rate a firm should pay an investor. The lower the risk, the lower the return rate.
a firm in need of capital has to pay less interest when being a low risk business for investors (overall firm fundamentals are positive) than when
investment. A positive effect of a strong brand is that it decre ensuring better future cash flow
2009). By decreasing the risk of an investment, a firm has lower cost of firm needs to pay the investor), wh
activities. Also in times of crises, firms profit from strong brands because they lower the vulnerability of its cash flows (Aaker, 1996).
With investors being risk averse, brands lowering cash fl indicators of future profit, the following is hypothesized:
H5: Positive changes in firm’s brand value
recommendations for the firm.
The author also expects that the effect of a chang recommendations depends on the
valued at 70 billion US dollar that has a relative change of 2%, is expected to have more influence on the change in analyst sto
dollar with a relative change of 2% 1.4 billion US dollar, while for
dollar. Thus, the change in brand value measured in US dollars can vary
relative change is the same, and it is expected that for large brands this change will have more impact on analyst recommendations
H6: The height of the brand value moderates the effect of the change
changes in analyst stock recommendation
equity brands. In general, strong brands significantly contribute to total firm value (Aaker &
nvesting money are the return and risk of the investment
2008). The two figures return and risk are interrelated. The higher the risk, the higher the return rate a firm should pay an investor. The lower the risk, the lower the return rate.
a firm in need of capital has to pay less interest when being a low risk business for investors (overall firm fundamentals are positive) than when investing in the firm is a high risk . A positive effect of a strong brand is that it decreases the risk of an investment by ensuring better future cash flows (Rao et al., 2004; Madden et al., 2006; Krasnikov et al., 2009). By decreasing the risk of an investment, a firm has lower cost of capital (the return a , which is favorable for financing general or specific business . Also in times of crises, firms profit from strong brands because they lower the vulnerability of its cash flows (Aaker, 1996).
With investors being risk averse, brands lowering cash flows’ risk, and brands being indicators of future profit, the following is hypothesized:
Positive changes in firm’s brand value favorably influence changes in analyst stock
The author also expects that the effect of a change in brand value on the change in analyst depends on the level of brand value. For example, a firm with a brand valued at 70 billion US dollar that has a relative change of 2%, is expected to have more influence on the change in analyst stock recommendation than a brand valued at 10 billion US dollar with a relative change of 2%. The increase in absolute brand value for the first brand
while for the second brand it is 7 times lower, namely 0.2 billion US in brand value measured in US dollars can vary a lot, even when the , and it is expected that for large brands this change will have more impact on analyst recommendations. Hence, the following is hypothesized:
brand value moderates the effect of the changes in brand value on the in analyst stock recommendations.
equity brands. In general, strong brands significantly contribute to total firm value (Aaker &
(Hillier et al., 2008). The two figures return and risk are interrelated. The higher the risk, the higher the return rate a firm should pay an investor. The lower the risk, the lower the return rate. Hence, a firm in need of capital has to pay less interest when being a low risk business for investors the firm is a high risk ases the risk of an investment by (Rao et al., 2004; Madden et al., 2006; Krasnikov et al., capital (the return a ich is favorable for financing general or specific business . Also in times of crises, firms profit from strong brands because they lower the
ows’ risk, and brands being
influence changes in analyst stock
e in brand value on the change in analyst of brand value. For example, a firm with a brand valued at 70 billion US dollar that has a relative change of 2%, is expected to have more than a brand valued at 10 billion US the first brand is the second brand it is 7 times lower, namely 0.2 billion US , even when the , and it is expected that for large brands this change will have more
2.6. Brand Value, Stock Recommendations, and Firm Value When analysts give favorable stock recommendations, this leads to
for a stock (Womack, 1996). Second, McAlister et al. (2007) showed that next to higher abnormal returns, positive recommendations also lower the vulnerability of firms’ future cash flows, and thereby reduce risk. Thus, analysts can
value with their recommendations (Womack, 1996; McAlister et al., 2007; Murphy, 2009).
Nevertheless, according to Jegadeesh et al. (2004) stock recommendations are unreliable in their nature when market-based as
With a brand being a key market
for analysts to incorporate them in their recommendation formation process. Thus, analysts eager to comply to the findings of Jegadeesh et al. (2004), improve their recommendations by using information about market-based assets in their recommendation formation process. This means that an improvement in brand value is positively translated by financial analy their stock recommendations, and thereby
Earlier in this study is hypothesized that brands influence the nature of stock recommendations of financial analysts. Taking the hypotheses and the above togeth
means that a causal link can be expected between; stock recommendations, and hence
It is hypothesized that the effect of a change in brand value on the total firm value is partially mediated by financial analysts’ stock recommendations. Partial mediation is expected instead of full mediation, because literature points out that brands significantly contribute to firm value in multiple ways (Horsky & Swyngedouw, 1987; Chaney et al., 19
Sullivan, 1993; Aaker & Jacobson, 1994; Barth et al., 1998; Mizik & Jacobson, 2008). Second, literature shows that financial analysts have difficulties with valuating intangible assets (Dempsey et al., 1997; Orlitzky et al., 2003; Jaworski, 200
financial analysts recommend many investors with buying decisions of certain stocks, but not all investors take these recommendations into account.
Thus, hypothesizing that:
H7: Financial analyst stock recommendations partially mediate the relationship between
change in brand value and firm value, where firm value is measured as
2.6. Brand Value, Stock Recommendations, and Firm Value
When analysts give favorable stock recommendations, this leads to higher abnormal returns for a stock (Womack, 1996). Second, McAlister et al. (2007) showed that next to higher abnormal returns, positive recommendations also lower the vulnerability of firms’ future cash flows, and thereby reduce risk. Thus, analysts can positively (but also negatively) affect firm value with their recommendations (Womack, 1996; McAlister et al., 2007; Murphy, 2009).
Nevertheless, according to Jegadeesh et al. (2004) stock recommendations are unreliable in based assets are not included in the formation of recommendations. With a brand being a key market-based asset for a firm (Keller & Lehmann, 2006), it is vital for analysts to incorporate them in their recommendation formation process. Thus, analysts ings of Jegadeesh et al. (2004), improve their recommendations by based assets in their recommendation formation process. This means that an improvement in brand value is positively translated by financial analy
, and thereby brands positively affect firm return and risk
Earlier in this study is hypothesized that brands influence the nature of stock recommendations of financial analysts. Taking the hypotheses and the above togeth
means that a causal link can be expected between; a change in brand value, the hence firm return and risk.
the effect of a change in brand value on the total firm value is partially mediated by financial analysts’ stock recommendations. Partial mediation is expected instead of full mediation, because literature points out that brands significantly contribute to firm value in multiple ways (Horsky & Swyngedouw, 1987; Chaney et al., 1991; Simon & Sullivan, 1993; Aaker & Jacobson, 1994; Barth et al., 1998; Mizik & Jacobson, 2008). Second, literature shows that financial analysts have difficulties with valuating intangible Orlitzky et al., 2003; Jaworski, 2007; McKinsey, 2009). Third, financial analysts recommend many investors with buying decisions of certain stocks, but not all investors take these recommendations into account.
Financial analyst stock recommendations partially mediate the relationship between value, where firm value is measured as firm’s return and risk
higher abnormal returns for a stock (Womack, 1996). Second, McAlister et al. (2007) showed that next to higher abnormal returns, positive recommendations also lower the vulnerability of firms’ future cash positively (but also negatively) affect firm value with their recommendations (Womack, 1996; McAlister et al., 2007; Murphy, 2009).
Nevertheless, according to Jegadeesh et al. (2004) stock recommendations are unreliable in sets are not included in the formation of recommendations. based asset for a firm (Keller & Lehmann, 2006), it is vital for analysts to incorporate them in their recommendation formation process. Thus, analysts ings of Jegadeesh et al. (2004), improve their recommendations by based assets in their recommendation formation process. This means that an improvement in brand value is positively translated by financial analysts in
return and risk.
Earlier in this study is hypothesized that brands influence the nature of stock recommendations of financial analysts. Taking the hypotheses and the above together, this the nature of the
the effect of a change in brand value on the total firm value is partially mediated by financial analysts’ stock recommendations. Partial mediation is expected instead of full mediation, because literature points out that brands significantly contribute to firm 91; Simon & Sullivan, 1993; Aaker & Jacobson, 1994; Barth et al., 1998; Mizik & Jacobson, 2008). Second, literature shows that financial analysts have difficulties with valuating intangible 7; McKinsey, 2009). Third, financial analysts recommend many investors with buying decisions of certain stocks, but not
