Brand equity, risk and return in Latin America
| DOI | https://doi.org/10.1108/JPBM-02-2017-1418 |
| Date | 20 August 2018 |
| Published date | 20 August 2018 |
| Pages | 557-572 |
| Author | Marta Olivia Rovedder de Oliveira,Aline Armanini Stefanan,Mauri Leodir Lobler |
| Subject Matter | Marketing,Product management,Brand management/equity |
Brand equity, risk and return in Latin America
Marta Olivia Rovedder de Oliveira, Aline Armanini Stefanan and Mauri Leodir Lobler
Programa de P
os-Graduação em Administração/ Departamento de Ciências Administrativas,
Universidade Federal de Santa Maria Centro de Ciencias Sociais e Humanas, Santa Maria, Brazil
Abstract
Purpose –This study aims to compare the performance of stocks of companies with high brand equity with the stocks of other companies listed on
the stock market of emerging countries of Latin America: Brazil, Chile, Colombia, Mexico and Peru.
Design/methodology/approach –The valuable brands (brands with high brand equity) considered were the most valuable Latin America brands
according to the Millward Brown reports. Carhart four-factor model was used to analyze performance and the total sample included 732 stocks in
the Latin American market collected at Economatica, monthly, for a period of 10 years.
Findings –The Valuable Brands Portfolio presents the lowest investment risk, suggesting that stocks of companies with valuable brands ensure
lower risk investment to shareholders in these emerging markets.
Originality/value –This study is the first to associate brand equity with the creation of shareholder value in the context of emerging Latin American
countries. In addition, the proposed method has also not been used previously to study emerging countries. The association found between a
marketing asset (brand equity) and stock market performance contributes to improve the relationship between marketing and finance areas. The
results of this study in emerging markets corroborate previous studies in developed markets, strongly suggesting the confirmation of the effect of
brand equity on the reduction of risk stock.
Keywords Latin America, Emerging markets, Shareholder value, Brand evaluation, Brand equity, Brand performance
Paper type Research paper
1. Introduction
Investors are increasingly directing attention to stock
performance, whichhas exerted great pressure on companies to
deliver value (Young and O’Byrne, 2001;Rust et al.,2004;
Luo, 2008). Hence, the marketing sector has also become
responsible for meeting short-termprofit targets (Keller, 2013)
and has come to view the ultimate goal as contributing to
shareholder return (Brodie et al.,2002;Day and Fahey, 1988;
Gruca and Rego, 2005;Srivastava et al., 1998;Currim et al.,
2017). Furthermore, the sectors of marketing and finance in a
company must worksystematically to achieve the crucial goal of
maximizing shareholder returns (Srivastava et al.,1998;Fine
et al.,2017).
At the same time, an important changehas been occurring in
the economy, characterized by a greater degree of importance
being given to intangible assets in comparison to traditional
physical assets. According to Lev (2004) and Fornell et al.
(2016), it is common nowadays to find companies with higher
value in terms of intangible assets than in terms of tangible
goods. However, intangible assets are generally not capitalized
like other investments on the balance sheets (Fornell et al.,
2016).
The brand is an example of an undervalued asset, giventhat
it is an off-balance-sheet item (Keller, 2013). In many cases,
intangible assets are responsible for generating significant
business growth and shareholder value (Katsikeas et al.,2016;
Keller, 2013;Lev, 2004), and brand equity has been
recognized as a key strategic asset for organizations (Davcik
et al., 2015;Kotler and Pfoertsch, 2010).Unfortunately, some
companies may be reticent to accept the brand-as-asset view
because of their deficient marketing capability in the form of
people, processes,or culture (Aaker, 2014).
Nevertheless, many authors consider brands as companies’
most valuable assets (Aaker, 1991;Kapferer, 2012;Kotler and
Pfoertsch, 2006;Lieven and Hildebrand, 2016). Aaker (2014,
p. 1) points out that brands “serve as the core of a customer
relationship, a platform for strategic options, and a force that
affects financials, including stock return.”As brand equity is a
fundamental construct in marketingtheory and practice (Datta
et al.,2017), recognizing its role in increasing shareholder value
highlights the importance and attention that the organization
and those responsible for the areas of marketing and finance
should give to brandequity, to maximize shareholder value.
Keller (2013, p. 36) points out that there is a “belief that
strong brands result in better earnings and profit performance
for firms, which, in turn, creates greater value for shareholders”
and this is corroborated by results of Frieder and
Subrahmanyam (2005), who suggest that individual investors
have a propensity to invest in companies with easily
recognizable products, as well as by Aaker (2014, p. 10) who
considers strong brands as “the basis of competitive advantage
and long-term profitability goingforward.”Although there is a
growing recognition of brandequity importance, it is necessary
to accrue more empirical evidence relating brand equity to
generation of shareholder value (Fehle et al., 2008;Madden
et al., 2006). In addition, studies investigating brand equity in
The current issue and full text archive of this journal is available on
Emerald Insight at: www.emeraldinsight.com/1061-0421.htm
Journal of Product & Brand Management
27/5 (2018) 557–572
© Emerald Publishing Limited [ISSN 1061-0421]
[DOI 10.1108/JPBM-02-2017-1418]
The authors acknowledge the financial support given by Conselho
Nacional de Desenvolvimento Científico e Tecnol
ogico (CNPq).
557
emerging countries are still incipientand no published research
addressing the breadth of this issue in Latin America has been
found.
Latin America is the scope of this study not only because of
the research gap related to the relationship between brand
equity and shareholder value, but also due to the lack of
attention to its emerging markets, which contemplates a large
consumer base with a growing middle class, despite the current
financial crisis. The McKinsey Global Institute (MGI)
estimates that, by 2025, the annual consumption in emerging
markets will reach US$30tnand account for nearly 50 per cent
of the world’s total –up from $12tn,representing 32 per cent in
2010 (Atsmon et al.,2012). Hence, a number of large
multinationals have already made inroads to these countries
because of the relatively large consumer markets, expecting
positive returns to investments in these markets. The
importance of Latin American marketshas also been shown by
special rankings published by Millward Brown and the MSCI
Latin American Emerging Markets index, which recognize the
growing economies that have attracted increasing interest and
activity from multinational companies in the past few years,
especially Brazil,Mexico, Chile and Peru.
In addition, the vast changes in technology over the last forty
years, mainly related to information and communication, have
contributed to the internationalization of capital and industrial
production (Pinazo and Piqué, 2011), supporting the
development of emerging markets, including the economic
growth of Latin America in recent years, according to data on
stock market performance provided by Morgan Stanley Capital
International (MSCI, 2017), which has tracked the performance
of stock exchanges over the past 15 years (Figure 1).
Currently five Latin American countries are included in the
MSCI Latin American Emerging Marketsindex, in descending
order in terms of weight: Brazil (55.24 per cent), Mexico
(28.87 per cent), Chile (9.49 per cent), Colombia (3.48
per cent) and Peru (2.93 per cent) (MSCI, 2017). The
classificationof countries in the MSCI index follows three main
criteria:
1 economic development of the country;
2 size and liquidity of the market; and
3 accessibility for investors.
Moreover, the MSCI regularly reviews the classification of
countries included, or with potential for inclusion,in its global
stock universe by examining economic development, size,
liquidity and market accessibility of each country (MSCI,
2017).
Figure 1 clearly depicts that, despite substantial variation
over time, the MSCI Latin American Emerging Marketsindex
has offered good performance compared to those of other
indices and behaved welluntil July of 2017. In contrast, there is
a gap of knowledge for this region, necessitating more research
about these markets, especiallyin regard to intangible company
assets, such as brand equity, which may be able to generate a
competitive advantage for organizations (Aaker, 2014) in these
countries.
The current hypothesis that brand is an intangible asset that
can maximize shareholder value necessitates investigation into
the association between brand equity and shareholder value to
contribute to our understanding of this topic. Thus, studies
about the financial performance of companieswhose brands are
considered valuable –by rankings of the most valuable brands,
published by companies and brand valuation institutes –are
important, mainly to evaluate whether these companies indeed
stand out incomparison to others on the marketas suggested by
the resultsof Madden et al. (2006) and Fehle et al. (2008).
Hence, this study proposes a performance comparison, in
terms of risk and return in the stock market of Latin America,
Figure 1 Performance ofcumulative indices from July 2002 to July 2017 (US$)
Brand equity, risk and return in Latin America
Marta Olivia Rovedder de Oliveira et al.
Journal of Product & Brand Management
Volume 27 · Number 5 · 2018 · 557–572
558
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