Stock Market Reactions to Brand Extension Announcements: The Effects of Brand Attitude and Familiarity

Abstract

Brand equity components, brand attitude and brand name familiarity, influence not only the positive benefits but also the adverse consequences that follow brand leveraging. Making use of event study methods, the authors assess whether and how the stock market return—a measure of the change in expected future cash flows—associated with a brand extension announcement depends on these brand equity components. The empirical analysis indicates that stock market participants’ responses to brand extension announcements, consistent with the trade-offs inherent in brand leveraging, depend interactively and nonmonotonically on brand attitude and familiarity.