The Value of Corporate Reputation for Shareholders: Evidence from Germany for DAX 30 Companies

Abstract

Looking for sources of unique and imperfectly imitable competitive advantage both, researchers and practitioners, have turned in the last decade their focus towards the examination of intangible assets (Lehmann 2004). In the quest for achieving sustained superior financial performance management of corporate reputation as a strategic intangible asset can be crucial for the long-term success of a corporation (Hall 1992). Reputation as relational asset facilitates a closer relationship between the corporation and its stakeholders. Hypothesizing reputation is meeting the propositions for market-based assets (Srivastava et al. 1998), it can be assumed the expected stock returns are higher for stocks of firms with higher reputation than for stocks of firms with lower reputation. Surveying the literature, it can be stated that only a handful of scientifically founded studies examined the relationship between corporate reputation and stock market performance (Black et al. 2000; Jones et al. 2000; Srivastava et al. 1997; Shefrin and Statman 1995). Consistent with recent definitions corporate reputation is considered as an attitude-related construct. Extending prior research, this study examines the roles of its cognitive (“competence”) dimension and, in contrast to many other measurement approaches, affective (“likeability”) dimension (Schwaiger 2004) in explaining stock market performance of German DAX firms.