The Dynamic Relationship Between Investments in Brand Equity and Firm Profitability: Evidence Using Trademark Registrations

Most marketing practitioners and scholars agree that marketing assets such as brand equity significantly contribute to a firm's financial performance. In this paper, we model brand equity as an unobservable stock that results from up to thirty years of past brand-related investment flows. Using firm-specific trademarks as investment proxies, our results show a significant long-run impact on financial performance. The dynamic profile of brand-related investments has an inverted-U shape that reaches its peak after eleven years. On average, it takes four years before brand related investments show a positive return, and investments older than nineteen years show no significant impact. For the median trademarking firm, brand equity contributes 265,000 Euro to annual profits.

Crass, Dirk, Dirk Czarnitzki and Andrew Toole (2016), The Dynamic Relationship Between Investments in Brand Equity and Firm Profitability: Evidence Using Trademark Registrations, ZEW Discussion Paper No. 16-004, Mannheim, published in: International Journal of the Economics of Business.