Corporate Reputation and Stock Returns: Are Good Firms Good for Investors?

Abstract

This paper examines the relationship between a firm's reputation and the returns on its shares. We employ a unique dataset from the UK based on ten years of surveys conducted for Management Today, where company directors and analysts at leading investment firms are asked to rate each company in their sector. We consider whether there may be a short-term effect around the time of the announcement and whether longer-term returns are superior for highly ranked firms. We find that while there is little evidence for short-term price pressure around the time of the event, investors who purchase stocks with reputation scores that have risen significantly can make abnormal returns. Consistent with the notion that there is no such thing as bad publicity, we find that firm's whose scores have fallen substantially still exhibit positive abnormal returns in both the short and long run when the market index is employed as a benchmark. However, when a more appropriate comparator is used, evidence of out-performance entirely disappears.

Keywords: Corporate reputation, Management Today Most Admired Firms, stock returns, trading rule performance

JEL Classification: G10, G14, M14, M20