Brand Perceptions and the Market for Common Stock

Abstract

This paper investigates the effect of company brand perceptions on investor incentives to hold stocks. We find that, after controlling for other postulated determinants of stockholdings, there is a negative and significant cross-sectional relation between percentage institutional holdings and brand visibility. This result is consistent with the notion that individual investors prefer to invest in stocks with easily-recognized products. Furthermore, we find that institutional holdings are positively related to firm size and beta. These results are intertemporally stable. Our analysis supports the notion that institutional portfolios eschew the relatively neglected small firm sector, whereas individual investors prefer holding stocks with high recognition and consequently, greater information flows and smaller parameter estimation risk. The analysis contributes to our understanding of how investors form their equity portfolios.