CORPORATE REPUTATION AND FIRM PERFORMANCE
ABSTRACT
This study examined the relationship between corporate reputation and firm performance using data between 2005– 2010. the data used were obtained from secondary sources and a total of 40 companies were used to carry out the study. Ordinary least square regression technique was used to test the hypothesis of the study. The study found a negative relationship between firm reputation and firm performance. Also firm liquidity had a negative relationship with firm performance. Firm complexity and firm tangibility had a positive relationship with firm performance. The study recommends that firms should concentrate more on integral issues that would further enhance performance rather than spend huge sums all in the bid to build a corporate image.
CHAPTER ONE
INTRODUCTION
Background of the study
Reputation is the strongest determinant of any corporations sustainability. Stock price can always comeback, business strategies can always be changed, but when an organization’s reputation is gravely injured, its recovery is difficult, long-term and uncertain. A risk to its reputation is a threat to the survival of the enterprise. Reputation is seen by many commendations as an important assets which could be used as a competitive edge or advantage and a source of financial performance. A “good” reputation is identified as an intangible resource which may provide the organization with a basis for sustaining competitive advantage given its valuable and difficult to imitate characteristics (Hall, 1993, Barney 1991) according to Ernst and Young the investment community believes that between 30 and 50 percent of a company’s value is intangible based mostly an corporate reputation. Others have placed value of such intangibles at 70 percent.
One of the most fundamental definitions of corporate reputation was given by (Fombrun, 1996p.72) he defined corporate reputations as “A perpetual representation of a company’s past actions and future prospects that describes the firms overall appeal to all its key constituents when compared with other leading rivals”. According to Walker (2010), a good reputation can lead to several strategic benefits such as lowering firm’s costs, enabling firms to charge premium prices, attracting applicants, investors and customers, increasing profitability and creating competition baruers. A positive reputation increases the likelihood that stake holders will contract with a given firm economic rents are earned on reputation and provide continue incentive for firms to sustain and invest in their reputation. Much of the current work on reputation has focused on establishing that reputation is a valuable assets by showing its effect on corporate financial performance (Rindova 2010).
For ages, the view that corporate reputation positively impacts on firm performance has been documented. In fact, even accounting literature backs the notation that corporate reputation causes an enormous amount of wealth en-capsulated in what is called good will, while some conventional wisdom assert that the reputation which organizations orchestrate for themselves, do cause sustainable profits. These views have attracted quite a lot of scholars to structure research is so many areas of corporate reputation and the body of knowledge on this subject is indeed not only increasing but deepening also.
Benefits of a good reputation are seen as higher customer retention rates and associated increased sales and product selling prices (Shapiro, 1983) and reduced operating costs (Pofony, 1993() not with standing these potential benefits questions continue to be raised about the adequacy of the reputation construct (Golsi and Wilson, 2001) how the benefits of corporate reputation are realized financially (Eberd & Schwaihger, 2005) and the direction of the reputation performance relationship.
Statement of research problems
One of the most critical strategic and enduring assets that a corporation and indeed people that comprise if may poses is good reputation. Compromising a reputation pose danger and eventual doom to any organizations as it ends us threatening its profitability and eventual survival. Cases such as Arthur Andersen and Co, Merck pharmaceutical company and Marsh and Mc Lennan gives us an insight into companies who compromised reputation and eventually collapsed. In the light of these the following research questions will be addressed.
What is the relationship between corporate reputation and firm performance?
How does firm reputation affect firm performance?
Objectives of the study
The main aim of the study is to examine the relationship that exist between corporate reputation and firm performance. The objectives are:-
To examine the relationship between corporate reputation and fir performance.
To determine the effect of firm reputation on firm performance.
Statement of research hypothesis
The following hypothesis are tested in the course of carrying out this research study.
There is a relationship between corporate reputation and firm performance
Firm reputation has effect on firm performance.
Scope of the study
This study focuses on corporate reputation and firm performance in Nigeria. The time frame for this study is for a period of five years (2006 – 2010) geographically this study is limited to Nigerian companies quoted on the Nigerian stock exchange.
Significance of the study
The research work on its conclusion together with what solution or findings will provide answers to some pertinent question as regards corporate reputation in Nigeria firms as well as proffer solutions to some existing challenges currently being faced in this area. Its significance is encompassing in the sense that every stakeholder will have access to good information so as to aid him or her in making decisions some of these stakeholders includes shareholders, directors of firms, public, government, student of accounting. Also prospecting researchers have access to work as regards this sectors and can build upon this study, identifying area untouched and conduct further research on them.
Limitation of the study
Problem encountered in this study were the use of secondary data in the research which include no assurance and reliability.
