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Corporate reputation and the future cost of equity

Author

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  • Benjamin Pfister

    (Institute for Market-based Management, Ludwig-Maximilians-Universität München)

  • Manfred Schwaiger

    (Institute for Market-based Management, Ludwig-Maximilians-Universität München)

  • Tobias Morath

    (Institute for Market-based Management, Ludwig-Maximilians-Universität München)

Abstract

Corporate reputation is an important management objective, bearing the potential to create sustainable competitive advantage, and many scholars have studied its impact on firm performance. However, its effect on the cost of equity has only recently begun to attract the attention of academic research. Empirical evidence is scarce, and the results are inconclusive. Applying a validated measure of reputation, we scrutinize its impact for a set of German blue-chip companies between 2005 and 2011. We show that higher levels of reputation are associated with a lower future cost of equity. While reputation improvements are not followed by a measurable short-term effect, reputational damages lead to a significant increase in the future cost of equity within 6 months. We interpret our findings against the backdrop of the previous studies, offering several explanations for diverging results.

Suggested Citation

  • Benjamin Pfister & Manfred Schwaiger & Tobias Morath, 2020. "Corporate reputation and the future cost of equity," Business Research, Springer;German Academic Association for Business Research, vol. 13(1), pages 343-384, April.
    • Handle: RePEc:spr:busres:v:13:y:2020:i:1:d:10.1007_s40685-019-0092-8
    DOI: 10.1007/s40685-019-0092-8
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    References listed on IDEAS

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    2. Becchetti, Leonardo & Cucinelli, Doriana & Ielasi, Federica & Rossolini, Monica, 2023. "Corporate social irresponsibility: The relationship between ESG misconduct and the cost of equity," International Review of Financial Analysis, Elsevier, vol. 89(C).
    3. Wong, Jin Boon & Zhang, Qin, 2022. "Stock market reactions to adverse ESG disclosure via media channels," The British Accounting Review, Elsevier, vol. 54(1).

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    More about this item

    Keywords

    Corporate reputation; Corporate risk; Cost of equity; Information asymmetry; Reputational damages; Intangible assets;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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