1 Motivation
2 Theoretical background
2.1 State of research
2.2 Contributions
Study | Smith et al. (2010) | Himme and Fischer (2014) | Cao et al. (2015) | This study |
---|---|---|---|---|
Setting | U.S. 2002–2004 | U.S. 1991–2006 | U.S. 1987–2011 | Germany 2005–2011 |
Measures | ||||
Reputation | AMAC | AMAC | AMAC | Schwaiger (2004) |
Control for financial halo | ✖ | ✓ | ✓ | ✓ |
Implied cost of equity | ✖ | ✖ | ✓ | ✓ |
Future cost of equity | ✖ | ✖ | ✖ | ✓ |
Hypothesized effects | ||||
Level of reputation | ✓ | ✓ | ✓ | ✓ (H1) |
Interaction with Information Asymmetry | ✖ | ✖ | ✓ | ✖ (H2) |
Changes in reputation | ✖ | ✓ | ✓ | ✓ (H3) |
Asymmetric effects | ✖ | ✖ | ✖ | ✓ (RQ) |
Findings | ||||
Main findings | Negative relationship (level of reputation) | No significant relationship | Negative relationship (level of reputation), amplified by information asymmetry Negative relationship (changes in reputation) | |
Additional Findings | Positive relationship between reputation and market value premium/financial performance | Negative relationship between customer satisfaction and cost of equity Negative relationships between reputation/brand value and cost of debt Negative relationship between customer satisfaction and cost of debt, amplified by reputation/brand value | Positive relationship between reputation and investor recognition |
2.3 Hypotheses and research question
RQ1: Do positive and negative changes in reputation have different associations with the future cost of equity?
3 Empirical study
3.1 Measures and sample
3.1.1 Corporate reputation
3.1.2 Implied cost of equity
Estimate | Assumptions | Long-term forecast horizon |
---|---|---|
rCT (Claus and Thomas 2001) | Firm value = sum of present book value and discounted future residual income Constant economy-wide long-term earnings growth Clean-surplus relation | 5 years |
rGLS (Gebhardt et al. 2001) | Firm value = sum of present book value and discounted future residual income Constant industry-specific long-term earnings growth Clean-surplus relation | 12 years |
Constant economy-wide long-term earnings growth Not reliant on clean-surplus relation | Not required | |
rMPEG (Easton 2004) | Zero long-term earnings growth Not reliant on clean-surplus relation | Not required |
3.1.3 Information asymmetry
3.1.4 Control variables
3.1.5 Sample
3.2 Methodology
4 Results
4.1 Corporate reputation and the future cost of equity
Variables | Mean | Median | SD | Min. | Max. | Predicted sign | |
---|---|---|---|---|---|---|---|
Panel A. Descriptive statistics | |||||||
1 | rAVEt | 0.115 | 0.111 | 0.028 | 0.064 | 0.239 | |
2 | rAVEadjt | 0.008 | 0.004 | 0.022 | − 0.036 | 0.097 | |
3 | Reputationt−6 | 0.590 | 0.597 | 0.073 | 0.409 | 0.772 | – |
4 | Non-financial reputationt−6 | 0.000 | 0.000 | 0.035 | − 0.097 | 0.095 | – |
5 | Market valuet (log) | 16.764 | 16.691 | 0.789 | 14.395 | 18.288 | – |
6 | Market-to-book ratiot (log) | 1.092 | 1.056 | 0.381 | 0.082 | 2.386 | – |
7 | Leveraget | 0.159 | 0.168 | 0.099 | 0.000 | 0.392 | + |
8 | Market betat | 1.182 | 1.161 | 0.357 | 0.523 | 1.962 | + |
9 | Long-term growtht | 0.103 | 0.091 | 0.113 | − 0.191 | 0.859 | + |
10 | Information asymmetryt (log) | 2.443 | 2.380 | 0.736 | 0.926 | 6.356 | + |
Variables | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | |
---|---|---|---|---|---|---|---|---|---|---|
Panel B. Correlations | ||||||||||
2 | rAVEadjt | 0.744*** | 1.000 | |||||||
3 | Reputationt−6 | − 0.161*** | − 0.047 | 1.000 | ||||||
4 | Non-financial rep.t−6 | − 0.104* | − 0.122** | 0.461*** | 1.000 | |||||
5 | MVt (log) | − 0.247*** | − 0.392*** | 0.049 | 0.050 | 1.000 | ||||
6 | MTBt (log) | − 0.699*** | − 0.442*** | 0.092 | 0.040 | 0.097* | 1.000 | |||
7 | LEVt | 0.024 | 0.115** | 0.194*** | 0.070 | 0.007 | − 0.244*** | 1.000 | ||
8 | BETAt | 0.148*** | 0.144** | − 0.015 | 0.004 | 0.003 | 0.000 | − 0.165*** | 1.000 | |
9 | LTGt | − 0.055 | 0.051 | 0.109* | − 0.011 | − 0.090 | 0.259*** | 0.141** | 0.087 | 1.000 |
10 | IAt (log) | 0.492*** | 0.380*** | 0.066 | 0.008 | − 0.206*** | − 0.495*** | 0.111** | 0.260*** | − 0.024 |
Variables | I | II | III | IV | V |
---|---|---|---|---|---|
Panel A. Model 1 (dependent variable: rAVEadjt) | |||||
Reputationt−6 | − 0.219** | − 0.396*** | |||
(0.076) | (0.062) | ||||
Non-financial reputationt−6 | − 0.140** | − 0.168*** | |||
(0.049) | (0.042) | ||||
MVt | − 0.501* | − 0.492* | − 0.554** | ||
(0.236) | (0.232) | (0.236) | |||
MTBt | − 0.296* | − 0.274* | − 0.252 | ||
(0.150) | (0.151) | (0.152) | |||
LEVt | − 0.013 | − 0.021 | 0.003 | ||
(0.085) | (0.087) | (0.091) | |||
BETAt | 0.026 | 0.038 | 0.053 | ||
(0.087) | (0.086) | (0.083) | |||
LTGt | 0.153** | 0.151** | 0.147** | ||
(0.055) | (0.050) | (0.053) | |||
IAt | 0.080 | 0.066 | 0.072 | ||
(0.096) | (0.093) | (0.092) | |||
Constant | − 0.093 | 0.174 | 0.786*** | 0.016 | 0.517*** |
(0.310) | (0.317) | (0.069) | (0.304) | (0.063) | |
Firm-half year observations | 314 | 314 | 314 | 314 | 314 |
R² | 0.725 | 0.732 | 0.644 | 0.734 | 0.633 |
Adjusted R2 | 0.685 | 0.691 | 0.599 | 0.694 | 0.587 |
Panel B. Model 2 (dependent variable:rAVEadjt) | |||||
Reputationt−6 | − 0.217** | − 0.300*** | |||
(0.081) | (0.078) | ||||
Reputationt−6×IAt | − 0.093 | − 0.116 | |||
(0.079) | (0.083) | ||||
Non-financial reputationt−6 | − 0.145** | − 0.154*** | |||
(0.051) | (0.043) | ||||
Non-financial reputationt−6 × IAt | − 0.081 | − 0.051 | |||
(0.061) | (0.066) | ||||
MVt | − 0.501* | − 0.460* | − 0.552** | ||
(0.236) | (0.236) | (0.230) | |||
MTBt | − 0.296* | − 0.280* | − 0.272* | ||
(0.150) | (0.151) | (0.149) | |||
LEVt | − 0.013 | − 0.010 | 0.000 | ||
(0.085) | (0.085) | (0.087) | |||
BETAt | 0.026 | 0.051 | 0.070 | ||
(0.087) | (0.082) | (0.087) | |||
LTGt | 0.153** | 0.159*** | 0.151** | ||
(0.055) | (0.052) | (0.050) | |||
IAt | 0.080 | 0.101 | 0.269** | 0.076 | 0.261** |
(0.096) | (0.101) | (0.096) | (0.093) | (0.092) | |
Constant | − 0.093 | 0.132 | 0.744*** | − 0.051 | 0.628*** |
(0.310) | (0.321) | (0.108) | (0.303) | (0.053) | |
Firm-half year observations | 314 | 314 | 314 | 314 | 314 |
R² | 0.725 | 0.736 | 0.679 | 0.738 | 0.670 |
Adjusted R2 | 0.685 | 0.695 | 0.635 | 0.697 | 0.626 |
Variables | Mean | Median | SD | Min. | Max. | Predicted sign | |
---|---|---|---|---|---|---|---|
Panel A.1. Descriptive statistics: full samplea | |||||||
1 | rAVEt | 0.116 | 0.112 | 0.029 | 0.060 | 0.240 | |
2 | rAVEadjt | 0.008 | 0.005 | 0.022 | − 0.030 | 0.100 | |
3 | ΔReputationt−6 | − 0.002 | − 0.001 | 0.037 | − 0.120 | 0.120 | − |
4 | ΔNon-financial reputationt−6 | − 0.001 | − 0.002 | 0.031 | − 0.110 | 0.090 | − |
5 | MVt (log) | 16.781 | 16.718 | 0.778 | 14.400 | 18.290 | − |
6 | MTBt (log) | 1.081 | 1.044 | 0.379 | 0.080 | 2.390 | − |
7 | LEVt | 0.162 | 0.174 | 0.099 | 0.000 | 0.390 | + |
8 | BETAt | 1.181 | 1.161 | 0.355 | 0.520 | 1.960 | + |
9 | LTGt | 0.103 | 0.090 | 0.118 | − 0.191 | 0.859 | + |
10 | IAt (log) | 2.463 | 2.392 | 0.741 | 0.926 | 6.356 | + |
Panel A.2. Descriptive statistics: reputation winnersb | |||||||
1 | rAVEt | 0.113 | 0.107 | 0.027 | 0.060 | 0.240 | |
2 | rAVEadjt | 0.007 | 0.004 | 0.021 | − 0.030 | 0.100 | |
3 | ΔReputationt−6 | 0.027 | 0.022 | 0.021 | 0.000 | 0.120 | − |
4 | ΔNon-financial reputationt | 0.018 | 0.016 | 0.025 | − 0.030 | 0.090 | − |
5 | MVt (log) | 16.792 | 16.705 | 0.738 | 14.400 | 18.290 | − |
6 | MTBt (log) | 1.116 | 1.122 | 0.362 | 0.170 | 2.390 | − |
7 | LEVt | 0.164 | 0.177 | 0.095 | 0.000 | 0.390 | + |
8 | BETAt | 1.148 | 1.118 | 0.341 | 0.520 | 1.920 | + |
9 | LTGt | 0.106 | 0.086 | 0.124 | − 0.083 | 0.839 | + |
10 | IAt (log) | 2.409 | 2.373 | 0.653 | 0.926 | 4.739 | + |
Panel A.3. Descriptive statistics: reputation losersc | |||||||
1 | rAVEt | 0.119 | 0.114 | 0.030 | 0.070 | 0.220 | |
2 | rAVEadjt | 0.008 | 0.005 | 0.023 | − 0.030 | 0.100 | |
3 | ΔReputationt−6 | − 0.031 | − 0.023 | 0.025 | − 0.120 | 0.000 | − |
4 | ΔNon-financial reputationt−6 | − 0.019 | − 0.016 | 0.026 | − 0.110 | 0.040 | − |
5 | MVt (log) | 16.770 | 16.733 | 0.817 | 14.690 | 18.230 | − |
6 | MTBt (log) | 1.048 | 1.010 | 0.392 | 0.080 | 2.230 | − |
7 | LEVt | 0.161 | 0.165 | 0.103 | 0.000 | 0.390 | + |
8 | BETAt | 1.213 | 1.181 | 0.367 | 0.580 | 1.960 | + |
9 | LTGt | 0.099 | 0.093 | 0.112 | − 0.191 | 0.859 | + |
10 | IAt(log) | 2.516 | 2.396 | 0.817 | 1.119 | 6.356 | + |
Variables | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | |
---|---|---|---|---|---|---|---|---|---|---|
Panel B.1. Correlations: full sampled | ||||||||||
2 | rAVEadjt | 0.736*** | 1.000 | |||||||
3 | ΔReputationt−6 | 0.003 | 0.024 | 1.000 | ||||||
4 | ΔNon-financial reputationt−6 | 0.019 | 0.050 | 0.765*** | 1.000 | |||||
5 | MVt (log) | − 0.247*** | − 0.389*** | − 0.008 | − 0.017 | 1.000 | ||||
6 | MTBt (log) | − 0.698*** | − 0.432*** | 0.010 | − 0.007 | 0.106* | 1.000 | |||
7 | LEVt | − 0.021 | 0.093 | − 0.008 | 0.007 | − 0.007 | − 0.212*** | 1.000 | ||
8 | BETAt | 0.186*** | 0.176*** | − 0.021 | 0.028 | − 0.025 | − 0.034 | − 0.150** | 1.000 | |
9 | LTGt | − 0.069 | 0.040 | 0.067 | 0.025 | − 0.100* | 0.269*** | 0.131** | 0.098 | 1.000 |
10 | IAt (log) | 0.492*** | 0.387*** | 0.002 | − 0.008 | − 0.210*** | − 0.506*** | 0.094 | 0.277*** | − 0.038 |
Panel B.2. Correlations: reputation winnerse | ||||||||||
2 | rAVEadjt | 0.779*** | 1.000 | |||||||
3 | ΔReputationt−6 | 0.001 | 0.040 | 1.000 | ||||||
4 | ΔNon-financial reputationt−6 | 0.076 | 0.051 | 0.732*** | 1.000 | |||||
5 | MVt (log) | − 0.148* | − 0.309*** | 0.049 | 0.055 | 1.000 | ||||
6 | MTBt (log) | − 0.680*** | − 0.502*** | − 0.021 | − 0.052 | 0.023 | 1.000 | |||
7 | LEVt | − 0.124 | − 0.001 | 0.035 | − 0.008 | 0.159* | − 0.158* | 1.000 | ||
8 | BETAt | 0.137 | 0.092 | 0.027 | 0.019 | − 0.021 | 0.028 | − 0.228*** | 1.000 | |
9 | LTGt | − 0.050 | 0.028 | 0.008 | 0.038 | − 0.149* | 0.271*** | 0.140* | 0.178** | 1.000 |
10 | IAt (log) | 0.462*** | 0.359*** | 0.032 | 0.028 | − 0.077 | − 0.486*** | − 0.062 | 0.384*** | − 0.095 |
Panel B.3. Correlations: reputation losersf | ||||||||||
2 | rAVEadjt | 0.705*** | 1.000 | |||||||
3 | ΔReputationt−6 | 0.208** | 0.090 | 1.000 | ||||||
4 | ΔNon-financial reputationt−6 | 0.107 | 0.103 | 0.516*** | 1.000 | |||||
5 | MVt (log) | − 0.322*** | − 0.451*** | − 0.086 | − 0.105 | 1.000 | ||||
6 | MTBt (log) | − 0.708*** | − 0.375*** | − 0.152* | − 0.093 | 0.173** | 1.000 | |||
7 | LEVt | 0.062 | 0.168** | − 0.075 | 0.005 | − 0.141* | − 0.260*** | 1.000 | ||
8 | BETAt | 0.211** | 0.241*** | 0.121 | 0.174** | − 0.026 | − 0.070 | − 0.085 | 1.000 | |
9 | LTGt | − 0.083 | 0.054 | 0.129 | − 0.017 | − 0.055 | 0.267*** | 0.123 | 0.025 | 1.000 |
10 | IAt (log) | 0.508*** | 0.406*** | 0.132 | 0.054 | − 0.302*** | − 0.518*** | 0.207** | 0.193** | 0.013 |
Variables | I | II | III | IV | V | |
---|---|---|---|---|---|---|
Panel A. Model 3 (full sample, dependent variable:rAVEadjt) | ||||||
ΔReputationt−6 | − 0.039 | − 0.004 | ||||
(0.066) | (0.060) | |||||
ΔNon-financial rep.t−6 | − 0.014 | 0.015 | ||||
(0.054) | (0.054) | |||||
MVt | − 0.466 | − 0.474 | − 0.472 | |||
(0.275) | (0.275) | (0.275) | ||||
MTBt | − 0.305* | − 0.307* | − 0.304* | |||
(0.162) | (0.161) | (0.163) | ||||
LEVt | − 0.032 | − 0.037 | − 0.032 | |||
(0.096) | (0.090) | (0.097) | ||||
BETAt | 0.030 | 0.029 | 0.031 | |||
(0.095) | (0.095) | (0.095) | ||||
LTGt | 0.155** | 0.161** | 0.157** | |||
(0.065) | (0.064) | (0.065) | ||||
IAt | 0.089 | 0.089 | 0.088 | |||
(0.102) | (0.101) | (0.103) | ||||
Constant | − 0.057 | − 0.070 | 0.299*** | − 0.068 | 0.301*** | |
(0.363) | (0.374) | (0.066) | (0.369) | (0.067) | ||
Firm-half year observations | 283 | 283 | 283 | 283 | 283 | |
R² | 0.706 | 0.707 | 0.602 | 0.706 | 0.602 | |
Adjusted R2 | 0.657 | 0.657 | 0.546 | 0.656 | 0.546 | |
Panel B. Model 4 (full sample, dependent variable:rAVEadjt) | ||||||
ΔReputationi,t−6Gain | 0.085 | 0.037 | ||||
(0.105) | (0.120) | |||||
ΔReputationi,t−6Loss | − 0.148* | − 0.039 | ||||
(0.079) | (0.074) | |||||
ΔNon-financial rep.t i,t−6Gain | 0.042 | 0.075 | ||||
(0.084) | (0.087) | |||||
ΔNon-financial rep.i,t−6Loss | − 0.073 | − 0.048 | ||||
(0.079) | (0.076) | |||||
MVt | − 0.466 | − 0.494* | − 0.481 | |||
(0.275) | (0.266) | (0.270) | ||||
MTBt | − 0.305* | − 0.311* | − 0.298* | |||
(0.162) | (0.149) | (0.159) | ||||
LEVt | − 0.032 | − 0.018 | − 0.021 | |||
(0.096) | (0.090) | (0.102) | ||||
BETAt | 0.030 | 0.032 | 0.028 | |||
(0.095) | (0.094) | (0.093) | ||||
LTGt | 0.155** | 0.170** | 0.157** | |||
(0.065) | (0.064) | (0.064) | ||||
IAt | 0.089 | 0.090 | 0.086 | |||
(0.102) | (0.101) | (0.102) | ||||
Constant | − 0.057 | − 0.200 | 0.267** | − 0.124 | 0.262*** | |
(0.363) | (0.362) | (0.110) | (0.358) | (0.063) | ||
Firm-year observations | 283 | 283 | 283 | 283 | 283 | |
R² | 0.706 | 0.712 | 0.603 | 0.707 | 0.604 | |
Adjusted R2 | 0.657 | 0.661 | 0.545 | 0.656 | 0.546 |
Variables | I | II | III | IV | V | VI |
---|---|---|---|---|---|---|
Panel C. Model 3 (reputation winners, dependent variable:rAVEadjt) | ||||||
ΔReputationt−6 | 0.089 | 0.104 | ||||
(0.133) | (0.127) | |||||
ΔNon-financial rep.t−6 | − 0.098 | − 0.055 | ||||
(0.114) | (0.094) | |||||
MVt | − 0.404 | − 0.392 | − 0.784** | − 0.768** | ||
(0.467) | (0.468) | (0.345) | (0.345) | |||
MTBt | − 0.251 | − 0.244 | − 0.190 | − 0.216 | ||
(0.221) | (0.207) | (0.244) | (0.237) | |||
LEVt | − 0.066 | − 0.039 | 0.100 | − 0.107 | ||
(0.103) | (0.115) | (0.092) | (0.093) | |||
BETAt | − 0.078 | − 0.089 | − 0.084 | − 0.071 | ||
(0.175) | (0.171) | (0.127) | (0.129) | |||
LTGt | 0.170* | 0.163* | 0.227** | 0.229** | ||
(0.085) | (0.090) | (0.100) | (0.095) | |||
IAt | 0.229 | 0.242 | − 0.004 | − 0.000 | ||
(0.149) | (0.156) | (0.146) | (0.142) | |||
Constant | − 0.023 | − 0.088 | 0.036 | − 0.566 | − 0.467 | |
(0.681) | (0.651) | (0.155) | (0.528) | (0.511) | 0.241** | |
Firm-half year observations | 139 | 139 | 139 | 135 | 135 | 135 |
R² | 0.719 | 0.721 | 0.611 | 0.744 | 0.746 | 0.613 |
Adjusted R2 | 0.615 | 0.615 | 0.494 | 0.646 | 0.646 | 0.492 |
Panel D. Model 3 (reputation losers, dependent variable:rAVEadjt) | ||||||
ΔReputationt−6 | − 0.167** | − 0.000 | ||||
(0.074) | (0.056) | |||||
ΔNon-financial rep.t−6 | − 0.191* | − 0.125 | ||||
(0.103) | (0.104) | |||||
MVt | − 0.481 | − 0.535 | − 0.131 | − 0.141 | ||
(0.362) | (0.338) | (0.335) | (0.312) | |||
MTBt | − 0.235 | − 0.277 | − 0.456** | − 0.469** | ||
(0.221) | (0.190) | (0.187) | (0.170) | |||
LEVt | 0.043 | 0.068 | − 0.007 | 0.052 | ||
(0.152) | (0.150) | (0.142) | (0.157) | |||
BETAt | 0.039 | 0.051 | 0.076 | 0.077 | ||
(0.107) | (0.098) | (0.112) | (0.111) | |||
LTGt | 0.048 | 0.088 | 0.057 | 0.066 | ||
(0.097) | (0.087) | (0.077) | (0.071) | |||
IAt | 0.049 | 0.045 | 0.112 | 0.111 | ||
(0.100) | (0.100) | (0.111) | (0.111) | |||
Constant | − 0.017 | − 0.249 | 0.482** | 0.373 | 0.197 | 0.291** |
(0.506) | (0.492) | (0.113) | (0.445) | (0.405) | (0.131) | |
Firm-half year observations | 144 | 144 | 144 | 148 | 148 | 148 |
R² | 0.779 | 0.787 | 0.707 | 0.769 | 0.779 | 0.704 |
Adjusted R2 | 0.696 | 0.704 | 0.616 | 0.686 | 0.696 | 0.615 |