Brand capital and firm value

Frederico Belo, Xiaoji Lin, Maria Ana Vitorino

Research output: Contribution to journalArticle

20 Scopus citations


We study the role of brand capital - a primary form of intangible capital - for firm valuation and risk in the cross section of publicly traded firms. Using an empirical measure of brand capital stock constructed from advertising expenditures accounting data, we show that: (i) firms with low brand capital investment rates have higher average stock returns than firms with high brand capital investment rates, a difference of 5.2% per annum; (ii) more brand capital intensive firms have higher average stock returns than less brand capital intensive firms, a difference of 5.1% per annum; and (iii) investment in both brand capital and physical capital is volatile and procyclical. A neoclassical investment-based model in which brand capital is a factor of production subject to adjustment costs matches the data well. The model also provides a novel explanation for the empirical links between advertising expenditures and stock returns around seasoned equity offerings (SEO) documented in previous studies.

Original languageEnglish (US)
Pages (from-to)150-169
Number of pages20
JournalReview of Economic Dynamics
Issue number1
StatePublished - Jan 1 2014



  • Asset pricing
  • Intangible capital
  • Return predictability
  • SEOs

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