“In Brand We Trust”: How Brand Equity Can Influence a Firm’s Default Risk

Abstract As the downward pressure on the economy increases, firms are faced with increasing default risk, risk prevention is imminent. Brand equity, as a crucial intangible asset, holds significant importance in driving firm development. Using a dataset of firms in China, this paper examines the relationship between brand equity and firms’ default risk, with a focus on the mechanisms through how brand equity mitigates default risk and the moderating role of product market competition. The results reveal that brand equity significantly reduces firms’ default risk by mitigating operating risk and lowering debt financing costs. Additionally, product market competition amplifies this default risk-reducing effect, highlighting the heightened importance of brand equity in highly competitive environments. This research makes a multidisciplinary contribution to both marketing and financial risk management literature, offering valuable theoretical insights and practical implications.