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Re-Assessing the Relationship between the Fortune Reputation Data and Financial Performance: Overwhelming Influence or Just a Part of the Puzzle?

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Abstract:

Reputation has emerged as an important concept in organizational research. One measure of reputation is Fortune Magazine's annual ‘America's Most Admired Companies’ survey. Despite its widespread use, there are concerns that the data are strongly influenced by a firm's previous financial performance. This has led some scholars to conclude that there is little new to be learned from the series that cannot be ascertained from traditional financial performance data. Results of a study conducted by Brown and Perry using the Fortune survey from 1991 are often cited as evidence of the strong correlation between financial performance and the Fortune data. The goal of this study is to analyze more recent Fortune reputation data than that used in Brown and Perry in order to examine whether the relationship between Fortune's reputation measures and financial performance has changed. We also examine the impact of industry level controls on this relationship. The main finding of our study is that the strong relationship between measures of financial performance and the Fortune overall ratings is far weaker when more recent data are examined. We also find that controlling for industry effects is important when using the Fortune data. The implication for future research is that Fortune Magazine's ‘America's Most Admired Companies’ list can continue to be a useful and valid source of data to explore the considerable variance in organizational reputation that remains unexplained.

Document Type: Research Article

DOI: http://dx.doi.org/10.1057/crr.2011.4

Affiliations: Haworth College of Business, Western Michigan University, Kalamazoo, Michigan, USA

Publication date: January 1, 2011

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