Valuation of New Trademarks

Abstract

Firms often register trademarks as they launch new products or services. We find that the number of new trademark registrations positively predicts firm profitability, stock returns, and underreaction by analysts in their earnings forecasts. Using the Federal Trademark Dilution Act (FTDA) as an exogenous shock to trademark protection, we find that greater trademark protection strengthens the predictability of new trademark registrations. Together, our evidence suggests that investors undervalue new trademark registrations.