Reputations and Financial Value

Interrelated in three ways: 1.Reputations have an effect on company profitability through operating performance. 2.It influences the level of demand, that is, its market capitalization, through perceptions of the company’s future prospects affected by profitability. 3.Building reputation capital companies are seen more attractive for working and investing, also increasing profitability.

The reputation value cycle

Stakeholder support and financial value are dynamically intertwined, whereupon value is built by endorsement. The stakeholder endorsement enables – funding for advertising, – philanthrophy and citizenship that generate media endorsements, – attract investors, and – add financial value.

Company reputation’s value influences corporate value through: 1.Sales revenue: – The buying quantity of every consumer is increased. – You can charge a higher price. – The number of loyal customers increases. – You build up customer satisfaction and therefore the chance of repetitive purchase. – Competitor price changing is not as effective.

2.Company brand effect: – Company can use its name as an umbrella, for example when entering – the markets with a new product you can charge a higher price and the – distribution can be taken care of more rapidly (Keller 1998). 3.Lower sales variance: – Sales are more constant due customer loyalty. 4.Performance bond and effect: – Performance bond effect enables better trading terms between companies (Milgrom and Roberts 1992).

5.Corporate brand effect: – Corporate brand effect makes it possible to spend a reduced amount of financial support in marketing than less appreciated counterparts (Keller, 1998). 6.Profit effects: – Company profitability can be lengthened through reputation. 7.Investor base: – Good reputations lure more investor attention. 8.Credit rating: – Investing in a company with a strong reputation is believed to be less risky.

Reputation capital is a subset of market value. (Fombrun & Van Riel, 2009, 33.)

The value of an intangible asset can be estimated from four different elements 1. Physical capital: Tangible assets such as appliances and machinery. 2. Financial capital: Liquid assets such as bank deposits. 3. Intellectual capital: Company expertise. 4. Reputation capital: Good relations with the stakeholders and positive perceptions of company brands. (Fombrun & Van Riel 2004, 32.)