To Extend and Defend: Essays on How Firms Can Grow and Protect Brand Equity

Brands are a firm’s most valuable assets. Firms invest significant financial resources in building, maintaining and protecting their brands. In this study, I examine the effect of different branding decisions on firm performance. In the first essay, I examine threats that brands face in the marketplace and analyze the financial consequences of a firm’s decision to protect its brands in courts. I draw on prior research and my examination of a large database of trademark infringement cases to build a taxonomy of unauthorized uses of brand. I then examine the short- and long-term consequences of defending brands from marketplace attacks. I find that upon filing of a trademark lawsuit, plaintiff firms experience significant negative short-term abnormal returns. The reaction is stronger if a litigation involves copycats, brand misappropriation, or counterfeits. Examining stock market reaction to the termination of a lawsuit, I show that, while in the short-term, winning a trademark case leads to negative abnormal returns, in the long-term, firms that have won a trademark case enjoy positive abnormal returns. In my second essay, I focus on new product introductions and analyze the consequences of a firm’s decision to use one of the following three new product branding options: 1) launching a completely new brand; 2) extending an existing brand; or 3) creating a sub-brand. To determine the factors underlying this decision, I first propose a theoretical framework that organizes product-level, category-level, and firm-level determinants of new product branding choice. I test this framework using a sample of new product introductions in the Consumer Packaged Goods industry. I then examine the extent to which deviations from the average industry practice (revealed by model predictions) have financial implications for the firm. I find that for innovative new products or products introduced in highly competitive categories, firms are more likely to use a new brand name or a sub-brand. Firms with high advertising spending are better positioned to launch a new brand, while firms with a large portfolio of brands should use a direct extension. Analyzing the stock market value of the firms in my sample, I document that firms that follow these recommendations have higher firm value than those that deviate