According to professor Schwaiger, the paper tries to answer the question: ¿Does it pay off for companies to be honest, sustainable, and responsible? This was because in the last decade, the companies were cheating on customers and they were not honest with their stakeholders ? in a nutshell, they did bad things.
For this research, professor Schwaiger and his team collect data from several companies in Germany (national and international) and compared the perceptions and the feelings of the people (clients) towards them with their financial performance.
The research showed that the companies built competitive advantages by fostering their reputation. But not only did the reputation boost the market value: A good reputation will also help companies during future times of crisis. The reason therefore lies in the effects reputation has on stakeholder behavior. Not only sales will go up, because customers value shopping from renowned companies. Firms will be able to recruit better workers (higher productivity); acquire better access to capital markets and lower credit costs; will enjoy favorableness and support from politicians and lawmakers, and also can get better procurement costs from their suppliers, among other benefits.
However, professor Schwaiger found some difficulties at the time of betting on long-term actions.
Professor Schwaiger also highlighted that sometimes the benefits of a good reputation are not the only variable in a top executive’s goal function. While the Corporate Communications Department typically advises a CEO with respect to maximizing a company’s reputation, the legal department may have a different goal function, i.e. avoiding fines and a CEO’s personal liability. This divergence may complicate long-term project as well as efficient crisis communication seen from the standpoint of a reputation manager.
RESULTS
Approximately 10 percent of the variation in total reputation may be attributed to recent and current financial performance (financial reputation), whereas some 90 percent of the variation in reputation can be attributed to nonfinancial aspects. It could be demonstrated that German DAX30 firms with above average reputation show significant abnormal buy-and-hold-returns (BHAR) over a period of 6 years (12/2005-12/2011). Depending on the model and the benchmark used, this BHAR ranges between 0.6% and 1% per month, thus being not only significant but also noteable.