Brand capital and credit ratings

We examine the relationship between brand capital and firms’ credit ratings. Using a sample of 5,787 publicly listed U.S. firm-year observations over the 1994–2017 period, we provide evidence that firms with higher levels of brand capital are associated with more favorable credit ratings. In cross-sectional analyses, we find that this relationship is more salient for firms with higher levels of information asymmetry and more financial and distress risk, and for firms with weak governance. In additional analysis, we find a negative relationship between brand capital and the implied cost of equity capital. Our results are robust to alternative measures of brand capital, an alternative regression model and endogeneity tests. Overall, our findings suggest that brand capital captures important financial and non-financial information, and that credit rating agencies, sensibly, consider brand capital in their assessment of firms’ credit worthiness.