Corporate Reputation And Technical Efficiency: Evidence From The Chemical And Business Services Industries

Abstract

Recent financial scandals have created uneasiness in our financial markets. This resulting crisis of confidence increases the importance of reliably assessing firm performance. How can investors and creditors confidently assess firm performance? Can firm reputation provide signals about firm performance and efficiency? The purpose of this paper is to examine the association between corporate reputation and efficiency, a dimension of firm performance. We obtain a measure of a firm’s technical efficiency by using Data Envelopment Analysis (DEA), a non-parametric technique. We use firms from America’s Most Admired Companies list of 2006 as our measure of firm reputation. Results support the hypothesis that firms with superior reputation operate more efficiently than matched firms in the business services (SIC = 73) and chemical (SIC = 28) industries. The results should be of interest to managers who engage in behavior leading to or maintaining a positive corporate reputation. Also, the results can increase individual investors’ confidence in investing companies with superior reputation.