Evaluating the Financial Impact of Branding Using Trademarks: A Framework and Empirical Evidence

Firms spend considerable efforts to build brand awareness and associations among consumers. Yet there is a limited understanding of the financial returns of such investments. In this article, the authors present a framework that uses trademarks as measures of firms’ branding efforts. They classify trademarks into two categories—brandidentification trademarks and brand-association trademarks—and propose that they are indicators of firm efforts to build brand awareness and associations among consumers, respectively. The authors then evaluate the chain of effects linking such assets with metrics of firms’ financial value. A longitudinal analysis of data collected from secondary sources reveals that the stock (i.e., total number) of brand-association trademarks available to firms in time period t increases their cash flow, Tobin’s q, return on assets, and stock returns and reduces their cash-flow variability in period t + 1. Furthermore, the authors observe that the stock of brand-identification trademarks owned by firms in period t – 1 influences the effects of brand-association trademarks on cash flow, Tobin’s q, and stock returns. Together, these findings provide useful insights into the financial value of branding.