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Executive Summary
Investors and managers evaluate potential investments in terms of risk and return. Existing research has focused on linking marketing activities and resource deployments with returns but has largely neglected marketing’s role in influencing the level of risk the firm experiences. Yet, the theoretical literature asserts that investments in market-based assets, such as brands, should lead to reductions in firm risk. Adopting risk measures that are well established in the finance literature (i.e., credit ratings to capture debt-holder risk and stock price variability to measure equity-holder risk), the authors examine the impact of consumer-based brand equity (i.e., brand awareness and the strength, positiveness, and uniqueness of brand associations in consumers’ memory) on firm risk from the perspective of the firm’s primary financial claimants—debt holders and share holders. Using EquiTrend data covering 252 Fortune 500 firms over the 2000–2006 period, the authors find that firms that have strong consumer-based brand equity brands exhibit lowered levels of financial risk. They find not only that consumer-based brand equity is significantly associated with firm risk but also that it explains variance in the risk measures above and beyond that explained by existing finance models (i.e. consumer-based brand equity has “risk relevance”). They also find that consumer-based brand equity has a stronger role in predicting firm-specific unsystematic risk than systematic (i.e., economy- or marketwide) risk. Finally, they find that consumer-based brand equity has a particularly strong role in protecting equityholders from downside systematic risk. The results have clear economic significance and suggest that managers should make brand management part of the firm’s risk management strategy and protect or even increase brand equity investments during periods of economic uncertainty.

Biography
Lopo L. Rego is Assistant Professor of Marketing in the Tippie College of Business at the University of Iowa. He received his PhD in Business Administration from the University of Michigan. His research interests focus on better understanding the marketing–finance interface—namely, what influence marketing strategies and marketing actions have on firm financial performance and on creating investor value. His current research interests include the marketing–finance interface, strategic marketing, shareholder value creation, strategic brand management, customer satisfaction, brand equity and empirical generalizations in marketing.

Matthew T. Billett is Professor of Finance in the Tippie College of Business at the University of Iowa. He received his PhD in Finance from the University of Florida. His research interests focus on banking and financial institutions and corporate finance.

Neil A. Morgan is an associate professor and Nestlé-Hustad Professor of Marketing in the Kelly School of Business at Indiana University. He has previously held faculty positions at University of North Carolina’s Kenan-Flagler Business School, Cambridge University’s Judge Business School, and Cardiff University’s Cardiff Business School. He received his PhD in Business Administration from the University of Wales. His research interests include marketing strategy implementation and linkages between marketing-related resources and capabilities and firm performance. Neil has also consulted with numerous firms in both these broad areas across several different industries. His current research projects focus on brand strategy, category management, retail shoppability, marketing capabilities, brand management and customer relationship management capabilities, and customer feedback systems.

Journal of Marketing, Volume 73, Number 6, November 2009
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