Abstract
This study investigates how a good reputation generates competitiveness for a firm in the capital market. We distinguish two aspects of corporate reputation – trustworthiness and attractiveness – and identify their distinct impacts on reducing management and business risks of investors, respectively. Our findings suggest that trustworthiness enhances investors’ expectations regarding a firm's motives, and gains the firm a competitive advantage from holding a low financing cost. Attractiveness, on the other hand, reduces investors’ uncertainty regarding a firm's ability, and generates the firm a competitive advantage from a high flexibility in choosing different financing instruments. We further demonstrate the impacts of these two types of competitive advantage on the capital structure management of a firm.
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Notes
For more information about the data, please see the RI website at http://www.reputationinstitute.com/knowledge-center/global-pulse, or the discussion in Ponzi et al. (2011).
Since the Global reputation data starts from 2006, it is the earliest year that we could obtain data. However, RepTrak™ scores are not measured for many companies in 2006, so we decide to choose the data starting from 2007.
High reputations are defined as those above the 75 percentile of all reputation measures, while low reputations are those below the 25 percentile.
One potential explanation of the insignificance of size is that only large firms are considered in constructing the reputation data. Thus, the firms in our sample are among the 600 largest firms in the world, which may weaken the effect of size on the leverage level.
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Wang, Y., Berens, G. & van Riel, C. Competing in the Capital Market with a Good Reputation. Corp Reputation Rev 15, 198–221 (2012). https://doi.org/10.1057/crr.2012.7
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DOI: https://doi.org/10.1057/crr.2012.7