Impact of the Reputation Quotient® on Investment Performance

Abstract

Reputation Quotients (RQs®) produced by Harris Interactive, Inc. are a presumed credible measure of corporate reputation that assesses corporate reputations employing six drivers, which are correlated with 20 attributes. Reputations appear to be an important characteristic of a firm, which transcends a company’s current production and financial statements to set a path for future performance. Although many years and multiple factors go into creating a reputation, this study found that past share price performance was unrelated to company reputation. However, reputation does appear to provide insight into future firm performance. Firms with the worst reputations often seem to have trouble providing a return sufficient to cover risk, especially in the absence of dividends. By comparison, firms with the best reputations tend to have lower risk, whether measured in terms of systematic risk or total risk, and therefore generate significantly higher risk-adjusted rates of return.