We examine the value relevance and reliability of brand assets recognized by 33 U.K. firms, and the stock price reaction to the announcement of brand capitalization. We find that brand assets are value relevant, i.e., associated with market values. However, the market capitalization rates of brands of firms with low contracting incentives are higher than those of firms with high contracting incentives to capitalize and overstate brand values. Thus, there could be substantial differences in the extent of bias or error in brand valuations of firms with different levels of contracting incentives, i.e., brand asset measures might not be reliable. The stock price reaction during the 21 days surrounding the first announcement of brand recognition is significantly positively associated with the recognized brand amount. However, the brand coefficient is only a small fraction of what would be expected if markets did not impute any value to brands before firms recognized them. Few previous value‐relevance studies have examined intangible assets recognized in financial statements, and none have examined the effects of contracting incentives on the reliability of the reported values of intangible assets.
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Research Article| January 01 2004
The Value Relevance and Reliability of Brand Assets Recognized by U.K. Firms
Online ISSN: 1558-7967
Print ISSN: 0001-4826
American Accounting Association
The Accounting Review (2004) 79 (1): 151–172.
Sanjay Kallapur, Sabrina Y. S. Kwan; The Value Relevance and Reliability of Brand Assets Recognized by U.K. Firms. The Accounting Review 1 January 2004; 79 (1): 151–172. https://doi.org/10.2308/accr.2004.79.1.151
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