ادراک تجاری، ثبات جریان نقدی، و سیاست مالی

This paper demonstrates that intangible assets play an important role in financial policy. Using a proprietary database of consumer brand evaluation, I show that positive consumer attitude toward a firm's products alleviates financial frictions and provides additional net debt capacity, as measured by higher leverage and lower cash holdings. Brand perception affects financial policy through reducing overall firm riskiness, as strong consumer evaluations translate into lower future cash flow volatility as well as higher credit ratings for potentially volatile firms. The impact of brand is stronger among small firms, contradicting a number of reverse causality and omitted variables explanations.

This paper explores the impact of an important intangible asset, the firm's brand, on financial policy. Brand is a substantial component of a firm's total value: according to a 2010 estimate, market value of brands accounts for over 30% of the market capitalization of Standard and Poor's (S&P) 500 firms, and exceeds the book value of equity of those firms.1 Existing literature has largely assumed that intangibles increase firm riskiness, as their value is destroyed in financial distress and economic downturns. This paper shows that this is not the case for all intangible assets, as strong brand can affect financial structure by reducing the riskiness of future cash flows. Using a novel survey-based data set of consumer brand evaluations, I demonstrate that positive perception of firms' products reduces forward-looking volatility of cash flows, and insulates firms during periods of recession. The lower riskiness associated with strong brand increases the probability that firms will meet their future financial obligations, and alleviates financial frictions, allowing firms to have higher levels of debt and smaller cash cushions. I first establish the cash flow volatility mechanism through which brand is linked to financial decisions, and demonstrate how consumers' positive opinion of a product reduces the riskiness of the firm. Although a critical assumption of perfect competition is that all sellers provide standard goods, in practice, individuals perceive different brands of the same product as heterogeneous, preferring some brands over others. Chamberlin (1933) shows that the product differentiation creates “monopolistic competition,” in which a firm's market becomes separated from its competitors, and clienteles of consumers with varying degrees of product loyalty evolve. Loyal consumers are more likely to repeatedly purchase the product they value and are less likely to switch to competitors. This behavior ensures a stable level of cash flows over time, and insulates the firm from downside shocks. I examine the validity of the cash flow volatility mechanism by empirically testing whether favorable brand perception reduces the riskiness of the firm. The data come from a marketing database, Brand Asset Valuator (BAV), the world's largest study of consumer evaluation across different product brands.2 Research in the marketing field demonstrates that positive consumer evaluations of a brand are associated with higher loyalty and larger purchase probabilities.3 As a result, favorable consumer views of a firm's products can provide information about characteristics of its intangible assets that are not reflected in the balance sheet. My main proxy for consumer brand perception is brand Stature, which measures how familiar households are with the brand and whether they have a positive regard towards it. I evaluate firms' riskiness as a function of brand perception in a number of ways. First, I find that firms with higher brand Stature experience lower forward-looking volatility of cash flows at both the individual and industry-adjusted level. The results are robust to controlling for the level of asset tangibility and historical measures of cash flow volatility. Second, I demonstrate that the relation between brand strength and firm riskiness also holds in periods of economic downturns. Specifically, I examine whether firms with strong brand perception suffer more during recessions, as wealth-constrained consumers become more price conscious and less sensitive to their personal preferences. Matched-sample analysis reveals that this is not the case: firms with high brand Stature experience better operating performance, compared to their less consumer-valued peers. Finally, I ask whether firms with a strong brand have a lower probability of bankruptcy, as measured by the credit ratings on their debt. The results show that credit ratings of firms operating in potentially risky environments (as measured by historical cash flow volatility) improve with positive brand perception of products. Therefore, strong brand is especially beneficial in reducing the default probabilities among apriori less stable firms. After establishing that favorable perception of a brand is associated with lower cash flow volatility and lower bankruptcy risk, I analyze the implications of brand loyalty for financial policy. First, firms with a strong brand perception will be able to enjoy the benefits of higher stability and lower default probability by taking on more debt. In addition, stable levels of cash flows provide a ready source of future liquidity, reducing the levels of cash reserves that firms have to maintain for precautionary reasons. In support of these arguments, I find that firms with stronger brand perception hold more leverage: a one standard deviation increase in brand Stature increases market leverage of the median firm by almost 2%. Firms with strong brand perception also hold substantially less cash compared to firms with otherwise similar characteristics. Next, I address alternative explanations and the possibility of reverse causality concerns. Brand perception could be endogenously determined if firms with easy access to debt capital decide to actively invest in altering consumer opinions about their products through promotions, advertising, and quality improvement. If this is the case, the relation between brand and financial policy variables should be stronger among firms with established reputations in financial capital markets, as they can raise external capital at low cost and allocate more resources to strategic brand management. To examine this possibility, I include the interaction of brand Stature and size in leverage and cash holdings estimations, and find that the effect of brand perception on financial decisions is about twice as strong in magnitude among small firms. A one standard deviation increase in brand Stature allows for more than 4% of additional debt capacity and reduces cash holdings by 4.5% for a firm in the 25th percentile. These results are inconsistent with the notion that financially established firms with easy access to external capital allocate more resources to the enhancement of their brand image. The overall evidence indicates that potentially opaque firms with limited access to external capital markets are those that obtain more financial flexibility when they have strong brands. I also examine whether brand perception could be affected by the proximity to bankruptcy. If consumers anticipate that the quality of the brand will decrease in financial distress, they could revise their opinions of a brand in anticipation of an upcoming bankruptcy. To address this possibility, I compare changes in brand Stature when firms experience a downgrade along different points of the credit ratings spectrum. If proximity to distress reduces consumer opinion of a brand, then the higher is the spike in default probability following the downgrade, the steeper should be the decrease in brand perception. However, I do not find support for this explanation, as firms that are downgraded within the sub-investment grade spectrum do not lose more brand loyalty than those firms that are downgraded within the A-rating range. Taken together, the results are inconsistent with the idea that brand perception is affected by financial health, or that firms with strong brand perception are more concerned about default probabilities than their lower-valued peers. In fact, the findings suggest that brand perception provides an advantage in obtaining good credit ratings with smaller financial adjustments needed. Overall, this paper makes several contributions to the existing research. Broadly, it adds to the product market and financial decisions literature by identifying a new mechanism that links characteristics of consumer product demand to the financial decisions. Also, while most existing studies focus on the relations between financial policy and industry variables, such as concentration ratio and competition, this paper shows how characteristics of consumer demand at the firm level affect financial decisions.4 The study also contributes to the area of capital structure examining the link between characteristics of assets/liabilities and financial leverage. Although Titman and Wessels (1988) have established that asset tangibility is one of the most important determinants of capital structure, recent studies, including Benmelech (2009), Benmelech and Bergman (2009), and Campello and Giambona (forthcoming) demonstrate that there is substantial variation within characteristics of tangible assets. Specifically, properties such as salability and redeployability have an impact on leverage levels and debt maturity. By focusing on the characteristics of intangible assets, this study complements the relatively limited literature on how the properties of off-balance sheet assets and liabilities, such as leases and pension plans, affect financial policy (Graham et al., 1998 and Shivdasani and Stefanescu, 2010). Finally, this study contributes to a growing number of finance papers that map marketing concepts, such as advertising and brand perception, into financial theory. For example, Grullon, Kanatas, and Weston (2004) and Chemmanur and Yan, 2010a and Chemmanur and Yan, 2010b look at the link between firm characteristics and advertising. Chemmanur and Yan (2009) and Grullon, Kanatas, and Kumar (2006) explore the relation between advertising and capital structure decisions, while Frieder and Subrahmanyam (2005) examine the impact of brand on a firm's ownership structure. This study incorporates a new data set that captures consumer subjective evaluation of firms' products and demonstrates that, in addition to visibility, marketing characteristics affect firms' financial decisions through the channel of cash flow stability. The rest of the paper is organized as follows: Section 2 develops the main hypotheses of the paper; Section 3 describes the data; and Section 4 explores the link between brand perception and different measures of riskiness. In Section 5 I test the implications of brand perception for financial policy; Section 6 discusses alternative explanations and verifies the robustness of the main conclusions. Section 7 concludes.

This paper demonstrates that intangible assets have an impact on corporate financial policy. I focus on characteristics of brand, which accounts for a large portion of firms' overall value and is relevant to firms across various industries. To examine the role of intangible assets, I employ a novel data set of consumer brand evaluation, the Brand Asset Valuator, which summarizes individual attitudes towards different brands using US household surveys. The main measure of this paper, brand Stature, captures the degree of familiarity and loyalty that consumers feel towards a certain brand. I use the Stature measure to test whether positive perception of a brand affects cash flow stability. Marketing literature shows that a strong brand generates a clientele of loyal consumers who have a high subjective value for the firm's products and are willing to stick with them over time. As a result, firms with favorable brand perceptions should enjoy a more stable stream of future profits and lower riskiness. To support the validity of the cash flow stability mechanism, I demonstrate that brand Stature reduces forward-looking volatility of cash flows. To verify that the results also hold in periods of economic distress, I split the sample into quartiles based on brand perception, and examine the performance of firms during recession. I find that brand Stature insulates firms' cash flows during market downturns as well, as firms with strong brands do not lose as much as firms with weaker brands. Next, I ask whether the lower forward-looking volatility, as proxied by brand Stature, is captured by credit market participants, and find that brand Stature improves credit ratings of historically riskier firms. After demonstrating that consumer attitude translates into lower riskiness and default probabilities, I turn to the main question of the paper and investigate whether characteristics of intangible assets have implications on the financial policy of the firm. I find that brand Stature has a positive impact on leverage and a negative impact on cash flows, improving the net debt position of the firm. The results hold after including historical cash flow volatility, the commonly used measure of stability, in all of the regressions. The impact of Stature on leverage and cash holdings remains significant, suggesting that Stature contains certain information about the firm not reflected in the historical measures of riskiness. A number of additional tests are performed to rule out endogeneity concerns. First, my subsample results do not support the explanation that financially strong firms allocate more resources to an active management of its brand. For the reverse causality explanation to hold, one would expect to find stronger results among large, mature, and established firms. I find the opposite. The impact of brand is more pronounced among financially constrained, that is, small and historically volatile firms. These findings strengthen the validity of the main hypothesis and suggest that constrained firms benefit most from having a strong brand, as they receive access to external capital markets on more favorable terms. Second, I test whether the link between credit ratings and brand perception could be driven by consumers revising their opinion about products when the firm gets close to bankruptcy. I identify spikes in bankruptcy risk based on credit ratings downgrades and show that brand perception does not change significantly around those events. Overall, the findings indicate that characteristics of intangible assets are just as significant in explaining financial policy as are tangible assets. The results also suggest that brand Stature can be viewed as an alternative forward-looking measure of cash flow volatility, which helps reconcile the mixed empirical evidence on the impact of cash flow volatility on leverage. In addition, this paper explores cross-sectional differences in cash flow volatility from the perspective of the product market. Irvine and Pontiff (2009) and Bates et al. (2009) show an increasing trend in cash flow volatility over time, which they attribute to more intense economic competition. This paper helps in understanding the source of volatility by examining characteristics of a firm's brand. Lastly, this paper offers implications for firm investment policy, suggesting that young firms can benefit from developing and enhancing their brands early in their business life, because this will improve not only relationships with its customers, but also with potential investors. From the creditors' perspective, the results suggest that a due diligence process that accounts for information such as consumer opinion about the firm's products can help in identifying potentially creditworthy borrowers. Finally, the paper shows the importance of the interaction between the fields of marketing and finance, and suggests that marketing policy such as brand management, and financial policy, such as capital and cash holding decisions, are interdependent.