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We examine the value relevance and reliability of brand assets recognized by 33 UK firms, and the stock price reaction to the announcement of brand capitalization. We find that brand assets are value relevant, i.e., associated with market values. However, the market capitalization rates of brands of firms with low contracting incentives—firms with no transactions that avoided the London Stock Exchange (LSE) rule requiring shareholder approval for acquisitions/disposals, and firms with industry-adjusted leverage below the sample median—are higher than those of firms with high contracting incentives. Thus there could be substantial differences in the extent of bias or error in brand valuations of firms with different levels of contracting incentives, i.e., brand asset measures might not be reliable. The stock price reaction during the 21 days surrounding the first announcement of brand recognition has a significantly positive association with the recognized brand amount. However, the brand coefficient is only a small fraction of the reaction that would be expected if markets did not impute any value to brands before firms recognized them. Few previous value-relevance studies have examined intangible assets recognized in financial statements, and none have examined the effects of contracting incentives on the reliability of intangible assets.


brand assets, intangible assets, contracting incentives, value relevance, reliability

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