Digital vs. Traditional Advertising and the Recognition of Brand Intangible Assets

This paper examines how different advertising categories are associated with attributes of brand asset recognition arising in the context of acquisitions. Prior research documents that aggregate advertising is positively associated with firm sales and brand values, but it fails to consider major recent shifts in advertising from traditional channels (such as TV) to digital advertising (such as paid search and online display). Using proprietary data, I decompose advertising expenditures into the categories of traditional, online display, and paid search. Consistent with expectations, results confirm that target firms’ traditional and online display advertising exhibit a higher likelihood of brand asset recognition and higher recognized brand values as compared with paid search advertising. Confirming the economic substance of the recognized brands, additional results reveal positive investor equity market reactions to brand value, which are driven by firms investing more in traditional and online display advertising. Overall, these results confirm that certain advertising channels exhibit stronger associations with the recognition and characteristics of the underlying brand asset, consistent with their heterogeneous properties.