IDEAS home Printed from https://ideas.repec.org/a/spr/reaccs/v20y2015i1d10.1007_s11142-014-9292-9.html
   My bibliography  Save this article

Company reputation and the cost of equity capital

Author

Listed:
  • Ying Cao

    (The Chinese University of Hong Kong)

  • James N. Myers

    (University of Arkansas)

  • Linda A. Myers

    (University of Arkansas)

  • Thomas C. Omer

    (University of Nebraska–Lincoln)

Abstract

We investigate whether companies with better reputations enjoy a lower cost of equity financing. Using a sample of 9,276 large US companies from 1987 to 2011 and the reputation rankings from Fortune’s “America’s Most Admired Companies” list, we find strong evidence that companies with higher reputation scores enjoy a lower cost of equity capital even after controlling for other factors that determine the cost of equity. In addition, we find that the effect of reputation on the cost of equity increases with the degree of information asymmetry, consistent with the reputation rankings providing information about company quality. We also find that changes in reputation are associated with subsequent changes in the company’s investor base, consistent with reputation rankings affecting investor recognition and improving risk sharing. We contribute to the cost of capital literature by identifying a unique determinant of the cost of equity and to the reputation literature by demonstrating an important benefit that derives from creating and maintaining a high reputation.

Suggested Citation

  • Ying Cao & James N. Myers & Linda A. Myers & Thomas C. Omer, 2015. "Company reputation and the cost of equity capital," Review of Accounting Studies, Springer, vol. 20(1), pages 42-81, March.
    • Handle: RePEc:spr:reaccs:v:20:y:2015:i:1:d:10.1007_s11142-014-9292-9
    DOI: 10.1007/s11142-014-9292-9
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s11142-014-9292-9
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1007/s11142-014-9292-9?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to

    for a different version of it.

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;

    JEL classification:

    • M4 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:reaccs:v:20:y:2015:i:1:d:10.1007_s11142-014-9292-9. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.