Abstract
Past research has shown that variations in price-earnings ratios are primarily influenced by expected earnings growth potential and perceived investment risk. However, these factors do not explain all the variation. This paper examines whether particular dimensions of corporate reputation contribute separately to price-earnings ratios. The study uses data on 141 companies from the 1992 Fortune magazine corporate reputation survey. The dimensions of the reputation survey (with the financial ‘halo’ removed) were used in a regression model along with five-year earnings per share growth projections and betas from Value Line reports to explain variation in price-earnings ratios. The results indicate that corporate reputation for social responsibility explains additional variation in price-earnings ratios, along with the traditional variable of earnings per share growth. Companies with stronger reputations for social responsibility have marginally higher price-earnings ratios.
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