Working Paper

Are Financial Analysts “Good Marketers”? Implications for Marketing and Investor Relations

Report Summary

One of the most important intangible assets a firm can possess is its brands, and prior research shows that brand management practices affect firm value. As financial analysts play an important role in influencing the consensus formation of the value of firms and, thus, how marketing affects firm value, it is of utmost important to examine whether and how analysts use value-added information on brand value.

However, only a few recent marketing studies examine the impact of key marketing instruments on analysts’ forecasts and recommendations. Further, no research explicitly examines the association between brand value and errors in the earnings forecasts, dispersion in forecasts, level of stock recommendations, and changes in recommendations of financial analysts.

This study by Thorsten Wiesel, Roman Kräussl, and Raj Srivastava investigates the association between firm brand values and these key financial analysts’ variables. They use a large-scale longitudinal dataset for 112 firms during 2000–2007 originating from Interbrand as well as financial sources such as COMPUSTAT, Institutional Broker Estimate System [I/B/E/S], Thomson ONE Banker, World Bank, and company financial reports.

The results reveal that financial analysts are, on average, not “good marketers”: they misevaluate and disagree on the impact of brand value on cash flows, as (changes in) brand value causes uncertainty in the information environment. While brand value information is publicly available to financial analysts, they do not necessarily include it in their decision making. Even when they do use this information, analysts make mistakes or do not know how to evaluate the impact of brand value on cash flows. This misevaluation affects both the focal firms (e.g., prevents securities from achieving a fair valuation) and financial analysts (i.e., harms their reputations and careers).

Overall, the findings have important implications for the marketing–investor relations (IR) interface. In particular, the authors argue that marketing and IR departments need to better communicate the information content of brand value as a key market-based intangible asset and systematically include brand values or other marketing constructs in their decision making. So doing will also help to avoid a negative and incorrect feedback loop of investor sentiment into managerial actions.

Furthermore, the financial community should use existing brand value information and should seek to acquire knowledge with respect to the link between market-based assets and firm performance. Marketing can be of great help because marketing has created an extensive knowledge base in this area.

Thorsten Wiesel is Professor of Marketing, Westfälische Wilhelms-Universität Münster, and Affiliate Researcher of Marketing, University of Groningen, Faculty of Business and Economics. Roman Kräussl is Associate Professor of Finance, VU University Amsterdam, Faculty of Economics and Business Administration. Rajendra K. Srivastava is Provost and Deputy President (Academic Affairs) and Professor of Marketing, Singapore Management University.

Acknowledgments
This research was supported by a Marketing Science Institute and Emory Marketing Institute research grant on “Marketing Strategy Meets Wall Street.” The authors appreciate comments and suggestions provided by Sonja Gensler, Rajesh Chandy, Peter Verhoef, and participants at INFORMS Marketing Science and EMAC. The authors also gratefully acknowledge the contribution of ThomsonReuters, which provided earnings per share forecast data, available through the Institutional Brokers’ Estimate System (I/B/E/S).

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