Does Corporate Reputation Provide a Cushion to Companies Facing Market Volatility? Some Supportive Evidence

Abstract

Stock market analysts have long known that share prices are driven by a company's financial fundamentals, including earnings, net income, cash flow and price-to-earnings ratio. Research that we conducted in the last few years describes another important factor that may impact a stock's price: the power of that company's corporate brand. Our analysis indicates that ‘brand power’ — a measure of how familiar investors are with a company and how favorably they feel toward that company — may have almost as much influence on a company's stock price as its financial strength. These findings are summarized in the AAAA booklet, ‘The Impact of Advertising on Stock Performance’ and were reported in the Summer/Fall 1997 issue of the Corporate Reputation Review. Our previous investigation into the relationship between brand power and stock price was based on an assumption of average market volatility. Lately, however, volatility has been anything but average, begging the question: Do our findings on the relationship between brand power and stock price hold true in volatile markets?