Newsweek’s measure of corporate environmental reputation and the ‘financial halo effect’

Abstract

We present in this study the results of our investigation into whether the Newsweek magazine measure of corporate environmental reputation (reported as part of Newsweek’s ranking of the 500 greenest corporations in the United States) suffers from a ‘financial halo effect’. Prior studies (e.g., Brown and Perry, 1994) document that other measures of corporate reputation (Fortune Most Admired scores and their sub‐components) are positively biased by recent financial performance, and as such, we seek to determine whether the same problem exists with this newly available measure. Using the Brown and Perry (1994) model and a sample of 474 of the 500 corporations included in the Newsweek listing, we find that the reputation measure appears to be influenced by at least some aspects of financial performance with firm size having by far the greatest impact. We also find, however, that the impact of firm size and profitability are less pronounced for companies operating in environmentally sensitive industries. The primary implication of our analysis centres on the use of the Newsweek scores in studies attempting to understand differences in corporate environmental reputation. Our findings underscore the need, particularly for studies including companies from non‐environmentally sensitive industries, to control for the confounding impacts of corporate financial performance.