Corporate Reputation Persistence and Its Diminishing Returns

Abstract

Favorable corporate reputations are intangible assets that offer firms a strategic competitive advantage (e.g., Fombrun, 1996). Corporate reputations are defined as stable, enduring (Walker, 2010; Vergin & Qoronfleh, 1998), and a tendency to persist (Roberts and Dowling, 2002; Schultz, Mouritsen, & Gabrielsen, 2001). Persistent reputations imply that while highly reputed firms continue to enjoy their reputations, firms with less favorable reputations have greater difficulty overcoming their poor reputations to move up the reputation ladder. This research examines reputation persistence by testing how well prior reputation is able to predict future reputation over a three year period. Using a sample of 103 firms, we find that a firm’s prior reputation is persistent, but diminishes over time. However, prior financial performance had an increased effect over time. Furthermore, firm performance helped to increase a firm’s change in reputation, while prior reputation had a greater stabilizing effect.