Do Changes in Corporate Reputation Impact Subsequent Stock Price Performance?

Abstract

This study of firm reputations finds that firms with improved reputations, as measured by Harris Interactive, provide higher average rates of return on the announcement date than those firms with diminished reputations. Somewhat surprisingly, firms with improved reputations earned an 8.3% return over the following year whereas firms with diminished returns earned a higher 15.4 % return. One can only speculate that firms with diminished reputations might be making management decisions that enhanced profitability at the expense of positive public perceptions of the firm. Sharpe and Treynor measures, based on median returns, were significantly greater for those firms with above average changes in reputation.