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The dynamic relationship between investments in brand equity and firm profitability: Evidence using trademark registrations

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  • Crass, Dirk
  • Czarnitzki, Dirk
  • Toole, Andrew A.

Abstract

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.

Suggested Citation

  • Crass, Dirk & Czarnitzki, Dirk & Toole, Andrew A., 2016. "The dynamic relationship between investments in brand equity and firm profitability: Evidence using trademark registrations," ZEW Discussion Papers 16-004, ZEW - Leibniz Centre for European Economic Research.
    • Handle: RePEc:zbw:zewdip:16004
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    Cited by:

    1. Bin Yang & Tao Yuan, 2022. "Trademark and IPO underpricing," Financial Management, Financial Management Association International, vol. 51(1), pages 271-296, March.
    2. Xiao, Yangao & Han, Nianchen & Li, Rui & Ran, Huaqing & Zhou, Shihao & Tong, Tony W., 2024. "Trademarks and firm market value: Evidence from new trademark-firm linked data in China," Research Policy, Elsevier, vol. 53(2).
    3. Naveen Kumar & Liangfei Qiu & Subodha Kumar, 2022. "A Hashtag Is Worth a Thousand Words: An Empirical Investigation of Social Media Strategies in Trademarking Hashtags," Information Systems Research, INFORMS, vol. 33(4), pages 1403-1427, December.
    4. Marco Grazzi & Chiara Piccardo & Cecilia Vergari, 2020. "Concordance and complementarity in IP instruments," Industry and Innovation, Taylor & Francis Journals, vol. 27(7), pages 756-788, August.
    5. Fabio Gaetano Santeramo & Roberto Manno & Marco Tappi & Emilia Lamonaca, 2022. "Trademarks and Territorial Marketing: Retrospective and Prospective Analyses of the trademark Prodotti di Qualità," Economia agro-alimentare, FrancoAngeli Editore, vol. 24(1), pages 1-37.
    6. Kyriakos Drivas, 2021. "Which travels farther? Knowledge or rivalry?," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 67(2), pages 299-333, October.
    7. Po‐Hsuan Hsu & Hai‐Ping Hui & Hsiao‐Hui Lee & Kevin Tseng, 2022. "Supply chain technology spillover, customer concentration, and product invention," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 31(2), pages 393-417, April.
    8. Justus Baron & Cher Li & Shukhrat Nasirov, 2019. "Why do R&D-intensive firms participate in standards organizations? The role of patents and product-market position," Discussion Papers 2019-16, University of Nottingham, GEP.
    9. Crass, Dirk, 2020. "Which firms use trademarks? Firm-level evidence from Germany on the role of distance, product quality and innovation," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 27(7), pages 730-755.
    10. Benjamin Azembila Asunka & Zhiqiang Ma & Mingxing Li & Nelson Amowine & Oswin Aganda Anaba & Haoyang Xie & Weijun Hu, 2021. "Analysis of the causal effects of imports and foreign direct investments on indigenous innovation in developing countries," International Journal of Emerging Markets, Emerald Group Publishing Limited, vol. 17(5), pages 1315-1335, January.
    11. Eunkyung Lee & Ji-Hern Kim & Chang Seop Rhee, 2021. "Effects of Marketing Decisions on Brand Equity and Franchise Performance," Sustainability, MDPI, vol. 13(6), pages 1-15, March.
    12. Jasper Grashuis, 2019. "The impact of brand equity on the financial performance of marketing cooperatives," Agribusiness, John Wiley & Sons, Ltd., vol. 35(2), pages 234-248, April.
    13. David C. Mauer & Natalia Villatoro & Yilei Zhang, 2022. "Brand equity and corporate debt structure," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 49(7-8), pages 1077-1112, July.
    14. Chen, I-Ju & Hsu, Po-Hsuan & Wang, Yanzhi, 2022. "Staggered boards and product innovations: Evidence from Massachusetts State Bill HB 5640," Research Policy, Elsevier, vol. 51(4).
    15. Xinghua Deng & Ran Jing & Zheng Liang, 2020. "Trade liberalisation and domestic brands: Evidence from China's accession to the WTO," The World Economy, Wiley Blackwell, vol. 43(8), pages 2237-2262, August.

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    More about this item

    Keywords

    Brand Equity; Firm Profitability; Intellectual Property Rights; Trademarks;
    All these keywords.

    JEL classification:

    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O34 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Intellectual Property and Intellectual Capital

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