Reputation, Financial Performance, and Industry Competition

In this study, we re-examine the relationship between reputation and financial performance in a unique setting, namely industry intensity. Using a sample of Most Admired Companies by Fortune magazine from 2006–2008, we show that industry competition partially changes the dynamic between financial performance and corporate reputation. While more reputable firms generate better operating outcomes regardless of industry competition, the effect of prior financial performance on subsequent reputation is moderated as competition intensifies. Specifically, in non-competitive sectors, financial outcome is still a dominating factor in evaluating future corporate reputation. The influence, however, is diluted in competitive sectors as information asymmetry is eased. Our empirical findings advance the understanding of the relationship between reputation and performance as well as its interaction with other institutional features.