Disentangling the reputation – performance paradox: Indian evidence

Abstract

PurposeThe purpose of this study is to examine the existence of bi-directional relation between corporate reputation and financial performance in developing nation like India.Design/methodology/approachThe study conducts panel regression analysis on data collected from annual reports of Indian companies constituting BSE 500 index over a period of 10 years (1 April, 2002 to 31 March, 2012).FindingsThe results of the study point towards the existence of strong positive bi-directional liaison between reputation and performance in India, thereby confirming the presence of “vicious circle” in context of emerging economy like India. The results are in line with the findings of Roberts and Dowling (2002) and Eberl and Schwaiger (2005), who asserted existence of reputational “vicious circle” in developed nations.Research limitations/implicationsThe current study measures the performance of companies through accounting-based measures only. However, incorporating market-based measures could have provided better insights into the relationship between corporate reputation and financial performance. The period of study pertains to the pre-mandatory regime, wherein changes brought about by the enactment of companies act, 2013 is out of the scope of the present research.Practical implicationsIt is argued that in actual practice managers should realise the ingenuity of intangible resources and incorporate them into their strategical plans. It is high time that corporate managers of developing nations give impetus to reputation building activities and uphold a good reputation to improve their financial outcomes. Thus, where good financial performance seems indispensable to build a good reputation, at the same time having the resource (good reputation) is not sufficient, its nurturing, management and effective use is all the more crucial if it is to improve financial performance.Originality/valueThere exists hardly any study comprehensively examining the relationship between corporate reputation and financial performance in the Indian context. This is the first known study to empirically test the lag relation between corporate reputation and financial performance in the Indian market. The study is unique as it follows a different approach in measuring corporate reputation. It is the first longitudinal study to analyse the bi-directional reputation-performance liaison in an emerging economy like India.