Corporate Reputation and Performance in Germany

Abstract

This paper explores the reputations of 63 German firms over the period 1988 to 1998. It considers what factors may affect firm reputations and how and why reputations change. The reputation data come from the survey by Manager Magazin that is similar to the one compiled annually by Fortune magazine in the USA. The results show that firm reputations fluctuate reflecting:

— firm efforts to improve their reputation, and

— critical news reports and specific negative incidents diminishing firm reputation.

While industry effects limit fluctuations in corporate reputation, the data also demonstrate firm level differences. Detailed analysis of the relationship between reputation and a measure of financial performance suggests that, in these data, prior financial performance has a strong effect on subsequent reputation. In turn, reputation appears more weakly related to a measure of subsequent financial performance. Finally, larger firm size and more concentrated ownership also lead managers to ascribe better reputations to German firms.