Article Summary: Consumer-Based Brand Equity and Risk

Topics: Regression analysis, Financial markets, Finance Pages: 3 (1054 words) Published: November 17, 2012
The goal of this article by Rego, Billett and Morgan is to uncover the relationship between consumer-based brand equity and firm risk from financial angle.

Firstly, the authors introduced consumer-based brand equity (CBBE) and firm risk which will be the main subject to study in this article. As is indicated in empirical literature, market-based brand should not only increase their income but also lower their risks. Also by reducing their risks, their value would be increased too, thus this will further help to increase benefits and return. Moreover, during the literature review, some gaps are found by the authors that the value of marketing in reducing risk to investors is not clearly explained yet. Since marketing costs are beneficial to the firm’s value, they should rather be accounted as a long-term investment than expenses. Then authors introduce two firm-level risks involved in stakeholder which are debt-holder risk and equity-holder risk. More specifically, debt-holder risk is seen as vulnerability-based risk. Equity-holder risk can be divided into two aspects: systematic and unsystematic risks. Both of them can be seen as variability-based risk but only unsystematic risk can be controlled by managers since it’s related to firm events and systematic risk is difficult for managers to control as it’s reflected by financial market. Secondly, from more empirical studies, the authors suggest that high CBBE leads to high level of consumer awareness, strong, positive and unique association and brand loyalty. Thus cash flows are protected. On the other hand, high CBBE also can provide good reputation which will decrease both debt and equity risks (H1). Moreover, high CBBE means idiosyncratic and can protect firms in market-level. Also, unsystematic risk can explain more equity risk than systematic one as is indicated before (H2). Then, the equity-based risk can be divided into upside and downside risks. When in “downside” situation (stock returns are...
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