Use of Event Studies to Estimate Brand Value: A Comparison of Methodologies
Pearsall, Nels A.
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Stock market event studies are often used to estimate the impact of an unanticipated event on stock returns of a company. Traditionally, these analyses focus on developing estimates of abnormal returns attributed to the event or some measure of post-event loss in shareholder value. In 1989 Mark Mitchell used an event study to estimate the impact of the 1982 Tylenol poisonings on Johnson & Johnsonâ s share returns. Mark Mitchell was able to demonstrate that (1) Johnson & Johnson share returns were significantly impacted by the poisonings, and (2) such an impact translated, at least in part, to a depreciation of brand name capital. This study sets forth the basic framework of Mark Mitchellâ s 1989 analysis and wherever appropriate, provides possible alternatives to his methodologies. Using several alternative approaches including, but not necessarily limited to, consideration of the incremental values associated with the Tylenol brand name, cost to develop the brand, alternative market factors, and changes in income streams I compare changes in brand value to brand name capital depreciation estimated by Mitchell. In some instances the aforementioned approaches are used in conjunction with aspects of Mitchellâ s methodology. The results tend to provide more accurate estimates of the loss in brand value possibly associated with the 1982 poisonings.
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