The Dynamic Relationship between Investments in Brand Equity and Firm Profitability: Evidence Using Trademark Registrations

Abstract

Die Dis cus si on Pape rs die nen einer mög lichst schnel len Ver brei tung von neue ren For schungs arbei ten des ZEW. Die Bei trä ge lie gen in allei ni ger Ver ant wor tung der Auto ren und stel len nicht not wen di ger wei se die Mei nung des ZEW dar.Dis cus si on Papers are inten ded to make results of ZEW research prompt ly avai la ble to other eco no mists in order to encou ra ge dis cus si on and sug gesti ons for revi si ons. The aut hors are sole ly respon si ble for the con tents which do not neces sa ri ly repre sent the opi ni on of the ZEW. The Dynamic Relationship between Investments inBrand Equity and Firm Profitability:Evidence using Trademark Registrations January 2016Abstract Most marketing practitioners and scholars agree that marketing assets such as brand equity significantly contribute to a firm's financial performance. In this paper, we model brand equity as an unobservable stock that results from up to thirty years of past brand-related investment flows. Using firm-specific trademarks as investment proxies, our results show a significant long-run impact on financial performance. The dynamic profile of brand-related investments has an inverted-U shape that reaches its peak after eleven years. On average, it takes four years before brand related investments show a positive return, and investments older than nineteen years show no significant impact. For the median trademarking firm, brand equity contributes 265,000 Euro to annual profits.

The impact of brand equity on the financial performance of marketing cooperatives

“…For the mean cooperative in the regression sample, the percentage translates to $130,441 in net sales. The positive impact in general corresponds to findings in the prior literature (e.g., Agostini et al, ; Crass et al, ; Greenhalgh & Rogers, ). Specifically, the finding is most comparable with Mehrazeen et al () and Agostini et al (), who reported estimates of approximately 0.07% and 0.02%, respectively, on net sales.…”

“…Without consideration of recent additions, variability in net sales is still explained significantly by trademark and service mark ownership. The rising magnitude may even suggest the impact of older trademarks is greater as compared with newer trademarks, which would correspond to the findings of Agostini et al () and Crass et al (). Again, there is not enough time series information to explore if there exists an exponential or an ∩‐shaped relationship.…”

“…Following the findings of Agostini et al () and Crass et al (), a long‐term perspective of the brand–performance relationship is adopted by implementing a longer lag. As there is not enough time series information to construct a distributed‐lag model, the same model specification is adopted but the lag is increased from one to two, three, four, and five periods.…”

“…Put differently, the relationship of trademark ownership to financial performance only became significant upon consideration of a 4‐year lag. Similarly, using a distributed‐lag model, Crass et al () determined the relationship of brand equity to performance for both public and private business organizations in Germany is characterized by an ∩‐shape with its peak at 11 years. Also, for the median company with a nonzero stock of trademarks, brand equity contributed €265,000 to its annual net income.…”

“…The research question is approached by means of empirical analysis of an unbalanced panel of 707 US marketing cooperatives for the 2005–2011 period. Brand equity is proxied by trademark data, which is relatively new but increasingly common in the recent empirical literature (e.g., Crass, Czarnitzki, & Toole, ; Grashuis & Dary, ; Greenhalgh & Rogers, ; Krasnikov, Mishra, & Orozco, ; Sandner & Block, ). In fact, the empirical literature with trademark data is growing as its strong ability to proxy intangible asset ownership is increasingly apparent (Schautschick & Greenhalgh, ).…”