Predicting brand equity by text-analyzing annual reports

Abstract

A firm’s public disclosure, such as its annual report, usually carries information of what it has done and/or will do. Since brand equity is a result of a firm’s branding efforts resulting from its long-term culture, strategy, and execution, an interesting but understudied issue is whether the information revealed in the text of a firm’s public disclosure predicts its brand equity. In this study, we propose that how managers think and therefore what the firm behind a brand does will help predict brand equity, with the thoughts and deeds of concern reflected in the Management Discussion and Analysis (MD&A) component of the firm’s annual reports (i.e., 10-K filings). Through text analysis and regression analysis on annual reports, we empirically demonstrate that a firm’s degree of customer orientation and a set of word categories as inferred from its MD&A component in the annual reports significantly predict its brand equity (as measured by the four dimensions of Young & Rubicam’s Brand Asset Valuator, i.e., BAV).