Financial analysts’ information role on brand capital

Abstract

Self-created intangible assets are crucial in firm valuations but are difficult for investors to evaluate because they are not recognised in financial statements. This study examines whether sell-side financial analysts contribute to the market’s understanding of the value of brand capital, an important type of self-created intangible assets. Measuring brand capital as a portion of the difference between a firm’s fair value and its book value, we find that market reactions to analysts’ forecasts and recommendations are stronger for brand-intensive firms, especially when analysts discuss brands in their reports, when analysts are experts in analysing brand capital, and when the firms’ brand capital valuations are more complex. Overall, we find consistent evidence that analysts help investors resolve brand-oriented information asymmetry.