The value relevance of brand valuation

Abstract

The reports published by independent parties are often used to provide an estimation of brands due\ud to the lack of literature and best practices regarding which brand valuation method is more value\ud relevant and reliable than another. Over the last several years, brand valuation debate is growing in\ud importance because of the need to provide a value of intangibles for different purposes. The purpose\ud of this study is two-fold. First, we aim to understand whether brand valuation related to listed\ud companies provided by three independent agencies is value relevant and therefore whether these\ud brand valuations are taken into consideration by investors in their decision-making process. Second,\ud we assess which of the three methods reflects the stockmarkets in a better way. We analyse a sample\ud of 71 brands valuated by Interbrand, Brand Finance and BrandZ from 2013 to 2015. The results show\ud that brand valuation provided by the independent agencies is value relevant; in addition, they reveal\ud that the Brand Finance method, based on the royalty relief approach, is more value relevant than the\ud others. This study contributes to the extant literature on value relevance by providing evidence on\ud the impact of stock prices of brand agencies’ valuation

Empirical Evidence on the Value Relevance of Brand Values across Countries

“…The results reveal that non-accounting values provided by consulting firms (e.g. Interbrand, Brand Finance and BrandZ) are relevant to equity valuation of companies (Bagna, Dicuonzo, Perrone & Dell'Atti, 2017). This is due to two main reasons: (1) the significant role brands take on in firm valuation (Barth & Clinch, 1998) and (2) the denial by many accounting standards to recognize internally built intangible assets, as most of the brands are.…”

“…As a previous work proves that Brand Finance values are built not using market parameters we do not test for endogeneity in the regression (Bagna et al, 2017). Consequently, the statistical correlation is not caused by simultaneous bias.…”

“…On the one hand, previous works demonstrate that brand values published by consulting firms are taken into consideration by investors and therefore they are reflected in the stock prices Bagna et al, 2017). On the other hand, other empirical analyses reveal that the value relevance of accounting data differs across countries due to environmental characteristics and institutional context (Ali & Hwang, 2000;Arce & Mora, 2002;Hellström, 2005).…”

“…We consider brand values published in Brand Finance's reports since this consulting firm provides more value relevant brand values then the others (Bagna et al, 2017). The main reason could be the use by Brand Finance of comparable transactions (i.e.…”

“…They find that this relationship is significant for consumers firms but not significant for industrial firms. Analyzing reports published by different consulting firms, Bagna et al (2017) Although evidence reveals a positive association between brand values and stock prices, a centr al issue is to understand whether this relationship differs across countries. Alford, Jones, Leftwich and Zmijewski (1993) analyze the difference in information content and timeliness of accounting earnings in 17 different countries due to the different accounting systems, using USA as benchmark.…”