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Media Reputation of a Firm and Extent of Trade Credit Supply

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Abstract

A positive corporate reputation is generally taken to be a valuable intangible resource leading to competitive advantage. In this paper we examine the association between a firm's media reputation and the amount of trade credit given in a sample of listed UK firms. We argue that media reputation is instrumental in mitigating customer information asymmetry. Consistent with expectations, our results show that a firm's willingness to extend trade credit to its customers is inversely related to its media reputation. The better its reputation, the less trade credit it allows. Moreover, the effect of media reputation on trade credit supply is stronger for younger firms and smaller firms, suggesting that media reputation is more effective in reducing trade credit given for firms lacking a well-established product performance reputation. These results document one of the ways in which corporate reputation, as an intangible resource, creates value for a firm.

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Notes

  1. The reputation literature is quite equivocal on the cognitive dimensions used to describe reputation content. A common (literature review-based) attribute list is offered by Gardberg and Fombrun (2002), comprising six attributes of reputation: Overall corporate appeal, Products and services, Vision and leadership, Financial performance, Workplace environment and Social responsibility. Overall corporate appeal would coincide with the overall affective dimension, whereas product reputation (Products and services) would be one of the five cognitive dimensions.

  2. In this regard, Fombrun and Shanley (1990) show that firms with more positive and non-negative news coverage enjoyed higher rankings in Fortune Magazine’s ‘Most Admired of the Year’ special issue.

  3. Other-referencing refers to cases where firm names are mentioned in a subsidiary role, as a kind of comparison to the featured main firm.

  4. The random effects procedure assumes that individual effects are uncorrelated with the independent variables. If the random effects assumption holds, the random effects model is more efficient than the fixed effects model. However, if this assumption does not hold (ie, if the Hausman test fails), the random effects model is not consistent. The Hausman test compares a more efficient model with a less efficient but consistent one, to make sure that the results of the more efficient model are also consistent. The Hausman test results in an insignificant p-value, which means that it is safe to use random effects.

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Authors and Affiliations

  1. KULeuven, Faculty of Economics and Business @HUBrussel, Brussels, Belgium

    Machteld Van den Bogaerd

  2. University of Antwerp, Antwerp, Belgium

    Walter Aerts

  3. Tilburg University, Tilburg, The Netherlands

    Walter Aerts

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  1. Machteld Van den Bogaerd
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  2. Walter Aerts
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Van den Bogaerd, M., Aerts, W. Media Reputation of a Firm and Extent of Trade Credit Supply. Corp Reputation Rev 17, 28–45 (2014). https://doi.org/10.1057/crr.2013.24

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