Marketing Expenses, Brand Equity, and a Firm's Financial Value
Ha, Kyoung Nam
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This dissertation examines the marketing-finance interface by interpreting strategic activities and brand equity in finance language. The first study focuses on the extent to which central brand equity dimensions (Differentiation, Relevance, Esteem, Knowledge, and Energy) influence downside risk, upside risk, and the differential between upside and downside risk. Results indicate that (i) Esteem has a negative effect on the risk differential, which comes from a more pronounced positive effect on downside risk, (ii) Energy has a positive effect on the risk differential, which comes from a more pronounced positive effect on upside risk, and (iii) Knowledge has a negative effect on both downside and upside risks, and, thus, it has no statistically significant effect on the risk differential. The second study aims at investigating the structural behavior among strategic activities, brand equity, and financial factors and their dynamic interactions in the long term as well as in the short term. Making use of the panel vector autoregressive model and orthogonalized impulse response analysis, this study provides empirical evidence of a link between strategic investments and brand value generation and finds feedback loops where advertising and research and development (R&D) expenditures and resultant brand equity increase cash flows and lower risk. The improved cash flows increase investments in R&D and advertising, enhancing brand value, which leads to a higher level of future-term cash flows, while the decreased risk induces a higher level of brand equity and as a result, lowers the level of risk. A high level of risk makes a manager invest more in R&D in the short run, which increases brand equity and reduces future-term risk, while an unexpected increase in risk leads to decreases in R&D and advertising expenditures in the long run. It is also found that the effect of a brand equity shock on cash flow and risk reaches a peak immediately and vanishes slowly, whereas the effect of an R&D shock reaches its peak and dies out quickly, and the effect of advertising shock reaches a peak and decays slowly. These findings allow managers to understand the marketing mechanisms and establish a tactical resource allocation.