Can Third-Party Brand Value Estimates Help Predict Cash Flows? A Machine-Learning Analysis

Abstract

We evaluate the usefulness of third-party brand value estimates (BVE) in forecasting corporate cash flows. Our sample consists of BVE for publicly-listed firms published by brand consultancy firms Interbrand, Brand Finance and BrandZ between 2006 and 2021. We find a positive incremental impact of Interbrand and BrandZ BVE on one-year-ahead operating cash flows in in-sample regressions. However, out-of-sample predictions based on linear regressions and Machine Learning methods show that BVE have no incremental cash flow forecasting power over standard accounting information. Analyses of long-term stock returns on zero-cost brand-owner portfolios and immediate stock price reactions to BVE announcements support the non-relevance of third-party BVE for predicting operating cash flows. Our findings extend to free cash flow and earnings forecasts and hold under alternative methodological specifications.