Brand capital and corporate investment efficiency

Abstract

Using a sample of US firms from 1975 to 2021, we show that brand capital improves investment efficiency, which is robust to various measures of brand capital and investment efficiency. To mitigate endogeneity concerns, we exploit the passage of the Federal Trademark Dilution Act as an exogenous shock to brand capital and find that it strengthens the positive effect of brand capital. Our cross-sectional analyses show that this positive relationship is more pronounced for firms with greater financial constraints and higher information asymmetry. These results suggest that brand capital reduces over- and under-investment through alleviating financial constraints and information asymmetry.