We examine whether exposure to counterfeit products affects brand and firm values. We use the U.S. Trade Representative's Special 301 Reports as exogenous shocks to identify countries that fail to adequately protect intellectual property rights and show that publicly listed U.S. corporations suffer from lower brand asset values in foreign countries with endemic counterfeit problems. Exposures to counterfeits also have significant effects on corporate investments, profits, and valuations. We find that, on average, U.S. firms significantly reduce capital and R&D investments when counterfeit activity declines. Our results highlight that counterfeit activity is an important factor that affects investment choices and valuations of U.S. firms.​

JEL classification: G15, G34, G31, M41
Keywords: Corporate investment, product market competition, counterfeit products