Brand Equity of Stocks and the COVID-19 Stock Market Crash:Evidence-Based on the Companies Listed in the Colombo Stock Exchange

Abstract

Introduction: This paper examines the mediating effect of brand equity in modulating the effects of the Covid-19 stock market crash on the CSE-listed firms. Brand equity, a measure of consumer trust and brand power, is increasingly recognized as an element contributing to market resilience in economic shocks. This study is focused on determining if the branded firms performed better than the non-branded firms during the crash, thus shedding light on the role of brand equity in financial stability.

Methodology: The study adopts a quantitative method with WLS regression method herein to handle the heteroscedasticity of the dataset. The research extends over two temporal periods—crash and non-crash—using stock performance information from branded and non-branded firms. Dependent variables are Raw Return, Abnormal Return, Systematic Risk, and Idiosyncratic Risk, while Brand Equity is the independent variable and Firm Age is a control variable. Data were analyzed with SPSS software under pre-tests for normality, autocorrelation, and homoscedasticity for strong statistical modeling.

Findings: Raw Return: Branded stocks demonstrated a positive yet statistically weak relationship with returns during the crash period, whereas non-branded stocks showed minimal impact. Abnormal Return: Non-branded stocks outperformed branded stocks in producing high abnormal returns, the opposite of prediction. Systematic Risk: Branded firms showed less systematic risk, supporting the protective effect of brand equity in a volatile market. Idiosyncratic Risk: Notably, there was no significant difference between branded and non-branded stocks in terms of idiosyncratic risk, which implies that brand equity necessarily fails to provide a shield against all kinds of market risk.

Conclusion: The results provide evidence for a nuanced mediating effect of brand equity in the modulation of stock performance in crisis periods. However, compared with branded firms, whose advantage was less apparent in returns, they did provide stability in the form of reduced systematic risk. The findings indicate that brand equity can be considered as a partial absorber of market shocks, with implications for branding and financial planning in times of economic shocks.