Corporate reputation and strategic performance
The objective of this study is to investigate relationships among various dimensions of corporate reputation and strategic performance.
Strategic performance may be considered to be the relationship of the whole organization to its environment. The literature on strategic management has recently focused on the use of finance theory and measures of risk in addition to traditional accounting measures of performance. The disciplines of management, economics, psychology, and sociology all suggest relationships between reputation and performance. This study examines possible relationships between corporate reputation and strategic performance. The reputation data is from Fortune's annual survey of corporate reputations from 1982 to 1984. The sample consists of the 98 firms that were surveyed in all three years. Performance and risk data for the same firms are from the Compustat data base for the years 1977 to 1984. The sample was divided into two equal groups of 49 firms each, so that results for one group could be checked by comparison to results for the other. The two groups were matched for equal representation of industries and for overall reputation.
The results show that reputation is related to certain measures of strategic performance, especially return on assets. Other accounting and market measures of performance and risk generally are not related to one another or to reputation. In general, reputation is not related to total stock return, but change in perceived quality of management is strongly related to total stock return. Change in quality of management is also related to prior quality of management.
The conclusion is that reputation is a major aspect of performance. The Fortune survey data may be regarded as a valuable predictor of future return on assets. The relationship of change in perceived quality of management to total stock return merits further study.