Revisiting corporate reputation and firm performance link

Abstract

Purpose

Corporate reputation is regarded as an intangible asset which differentiates a firm from others and attracts customers to repurchase and willingly pay a premium price for products. However, despite the perceptive association between reputation and financial performance, empirical studies report inconclusive results. The purpose of this study is to investigate this link more comprehensively using four different reputation attributes and firm characteristics in the context of high‐ vs low‐tech companies.

Design/methodology/approach

This study operationalizes the corporate reputation as the four measures of Fortune's “America's Most Admired Companies” of 2008 and matched the companies with financial performance and firm characteristics measures from COMPUSTAT Research Insight for the period between 2001 and 2005. A total of 230 firms (108 in high‐tech vs 122 in low‐tech) over the same period were selected and stepwise multiple regression analysis probed the relationship between the corporate reputation and performance.

Findings

The key finding of this study is that such variables as corporate reputation are significantly and positively related with most indices of corporate performance measures while debt leverage affects profitability negatively. It was surprising to find that innovativeness turned out to have no impact on financial performance in both high‐ and low‐tech firms. The positive association between social responsibility and firm performance appeared to be partially supported because it showed significant impact on market‐based performance, but not on accounting‐based performance.

Originality/value

This study confirms the resource‐based view that a valuable, inimitable, and non‐substitutable asset such as corporate reputation leads firms to enhance financial and market performance. However, the effect is contingent on firm characteristics such as firm size, R&D intensity, debt leverage ratio, and capital intensity. Corporate reputation appears to emerge as a critical dimension of benchmarking of a firm performance.

Citation

Lee, J. and Jungbae Roh, J. (2012), "Revisiting corporate reputation and firm performance link", Benchmarking: An International Journal, Vol. 19 No. 4/5, pp. 649-664. https://doi.org/10.1108/14635771211258061