Prior Financial Performance as A Predictor of Perceived Organizational Reputation: An Empirical Examination among Local Authorities in Israel

Abstract

This study explores the relationship between prior financial performance and perceived organizational reputation of local authorities in Israel. in the business sector, studies have indicated that prior financial performance, such as ROA, is found to be a good predictor of corporate reputation (McGuire, Sundgren and Schneeweiss, 1988; Hammond and Slocum, Jr., 1996). the local government in Israel has been experiencing an ongoing financial crisis. However, while some local authorities have inferior financial performance, others have managed to attain a superior financial position. Unfortunately, the established argument that the influence of past financial performance yields the core nature of the reputation construct has not been tested in the public sector, particularly among local authorities. The results of testing this construct among 112 Israeli local authorities (42.6% of the target population) for 1997 and 1998 showed that only two financial measures remained in the equation for each year. in 1997, the financial measures were the collecting efficiency ratio and the income-to-expenses ratio in the regular budget. These two measures explained 11.6 percent of a local authority's perceived organizational reputation in the year 2000. in 1998, the financial measures were the collecting efficiency ratio and the per-resident surplus (deficit) ratio. These measures explained 15.5 percent of a local authority's perceived organizational reputation in 2000. the results may lead local authorities to acknowledge the importance of being in a superior financial position in order to have a favorable organizational reputation.