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Abstract
Purpose - Theory has made many assumptions about the consequences of a "good" corporate reputation. The aim of this paper is to provide evidence of the effect of a positive corporate reputation on the firm's future financial performance by means of a more differentiated concept of reputation than the one commonly used in literature.
Design/methodology/approach - In contrast to prior research, reputation is conceptualised by means of a two-dimensional approach. Therefore, two distinct reputational components are hypothesised as affecting financial performance differently. A large-scale representative survey of 30 of the largest German firms is conducted to gain reputational evaluations of these firms. The overall assessment of reputation is differentiated into a part that is explained by past financial performance and an idiosyncratic part to control for the effect of past performance on today's reputation. Finally, the idiosyncratic effect of reputation on future performance is assessed with an econometric model.
Findings - Both the cognitive and the affective reputational dimension significantly influence future financial performance after controlling for past performance. Furthermore, the results suggest that the decompositional model outperforms a non-decompositional approach in terms of goodness of fit.
Research limitations/implications - There is only a limited possibility to generalise the results to all firms.
Practical implications - The results imply a need for differentiated reputation management, since the cognitive and affective components of corporate reputation drive financial performance differently.
Originality/value - The two-dimensional reputational approach broadens prior research with a focus on the differences in performance - the effects of both the reputational components.
Keywords Corporate image, Business performance, Stock markets, Germany
Paper type Research paper
Motivation
Recent research into factors affecting corporate success shows a growing interest in intangible assets. Supported by the resource-based view of the firm, the study of hard-to-quantify competencies is increasing rapidly. Major research efforts have particularly been undertaken in the field of corporate reputation (e.g. Gotsi and Wilson, 2001), since reputation is one of those intangibles that is extremely hard to imitate (Mahon, 2002; Hunt and Morgan, 1995; Caruana, 1997), turning it into a valuable source of competitive advantage. Along with the search for a management tool, corporate-level marketing has emerged as one of the most exciting research areas of the past few years (e.g. Balmer, 2001a, 2003;...