The “Risky” Side of Brand Equity: How Brands Reduce Capital Costs

Abstract Whereas it is widely accepted that strong brands are associated with superior productmarketplace and firm financial performance, their influence on firm risk is less clear. However, recent studies from the marketing-finance interface have started to unveil the impact that marketing activities have on the firm’s financial risk, above and beyond ist impact on financial returns. In this study, the association between brand equity and firm risk are investigated. The findings indicate that a firm’s consumer-based brand equity (i.e., strong brands) is associated with decreased debtholder and shareholder risk and also reduces the capital costs for the company. Furthermore, brand equity is particularly relevant in protecting firms’ equity holders during down-market periods. As a consequence, firms should consider brand management within the firm’s risk management strategy and maintain or even increase consumer-based brand equity investments during periods of economic uncertainty.