Empirical Analysis of the Relationship Between Corporate Reputation and Financial Performance: A Survey of the Literatur
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Volume 6 Number 2
In Practice Empirical Analysis of the Relationship Between Corporate Reputation and Financial Performance: A Survey of the Literature Juan Manuel de la Fuente Sabate and Esther de Quevedo Puente University of Burgos ABSTRACT This paper reviews the empirical literature analyzing the relationship between corporate reputation and financial performance. It points out the progress made and the new trends that have become apparent, reflects on the gaps that have been left in our knowledge and speculates on possible future studies that will allow us to enlarge our knowledge of this relationship. INTRODUCTION Defining the relationship between corporate reputation and financial performance involves answering two questions: the characterization of the relationship sign as positive or negative and the direction of causality, ie whether corporate reputation has an influence on financial performance or whether financial performance affects corporate reputation. Contradictory results have been reached on these questions. Some authors have proved a positive relationship, while others have demonstrated an ambiguous or even a negative one. The literature has laid the blame for this inconsistency on: the use of multi-sector samples, the multiplicity of financial performance measures and the diversity of reputation constructs. In addition, there is another factor that, from our point of view, may be relevant: the lag with which reputation affects value creation and vice versa. Since these factors are apparently the originating causes of this inconsistency, we will stress
these factors particularly in the review of literature that we now undertake. This will allow us to reflect on new trends in research and to highlight ways of enriching this research tradition. The first point we would like to emphasize in this analysis of literature is the recurrent use of cross-section methods that also incorporate multiple industries. The results of such a wide array of samples may disguise specific differences between the measures of corporate reputation and financial performance among the different industries. The composition, structure and degree of ‘activism’ of stakeholders vary from one sector to another. This is due both to internal and external pressures inherent to a particular industry, as well as to the level of legislative control, commitments or obligations to the environment and employee security requirements. In other words, while pressures are usually homogeneous within a particular industry, they vary greatly between industries. Likewise, there may be several measures of financial performance (Davidson III and Worrell, 1990; Griffin and Mahon, 1997). When reviewing the literature, we come across the use of different accounting measures, the use of other market measures, or even a mixture of both, which introduces a new source of divergence in the analyses and further hinders comparison of results. If we consider accounting data, comparison may be misled
Corporate Reputation Review, Vol. 6, No. 2, 2003, pp. 161–177 # Henry Stewart
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