Owning valuable brands enhances the financial well-being of firms not only through increased revenues and profitability but also by mitigating agency problems, earnings management, and financial reporting irregularities. Firms with high brand equity are less likely to have income-inflating discretionary accruals, announce earnings restatements, or experience SEC investigations. Brand equity reduces the likelihood of manipulation through incentive and opportunity channels, which we capture in CEO characteristics and compensation, and corporate governance measures. Brand equity reduces the likelihood of financial reporting irregularities more for durable goods firms and firms with shorter-tenured CEOs, as the latter are most vulnerable to performance pressures.
Ghada M Ismail, Fariz Huseynov, Pankaj K Jain, Thomas H McInish, Brand Equity, Earnings Management, and Financial Reporting Irregularities, The Review of Corporate Finance Studies, Volume 10, Issue 2, June 2021, Pages 402–435, https://doi.org/10.1093/rcfs/cfaa018
Review of Corporate Finance Studies
© The Author(s) 2020. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. Original published version available at https://doi.org/10.1093/rcfs/cfaa018