Brand Equity, Earnings Management, and Financial Reporting Irregularities
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.
Review of Corporate Finance Studies
Ismail, G., Huseynov, F., Jain, P., & Mcinish, T. (2021). Brand Equity, Earnings Management, and Financial Reporting Irregularities. Review of Corporate Finance Studies, 10 (2), 402-435. https://doi.org/10.1093/rcfs/cfaa018