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Predicting Firm Reputation Through Content Analysis of Shareholders' Letter

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Abstract

In this study, we use content analysis to measure the usefulness of the narrative content of the chairman's letter to the shareholders as a possible proxy for corporate reputation. Firms with both high and low corporate reputations are identified using three prominent rating services. Using content analysis, significant variations in word choice, word length and word variety are found between these two groups. The firms with a high corporate reputation use less varied, shorter and more concrete words than the low reputation firms. These high reputation firms concentrate on realism with a matter-of-fact type of style. Based on these variables, a logit regression successfully classifies 81 percent of our study firms according to perceived reputation. The results are further tested by matching unranked corporations to our study firms. The logit values for the matched firms are statistically different from those of the study groups. We attribute this to content differences in the letter to the shareholders. This significant association between narrative content and corporate reputation suggests that management uses the shareholders’ letter as a tool of reputation management.

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Notes

  1. We do not include the awareness category because each survey requires that the survey participants be aware of the firms they are rating. Consequently, the reputation ratings would only spuriously be related to awareness.

  2. In addition to the clarity of the statement, the letter gives verifiable statistics as to why the firm is a leading provider and why the housing industry is one of the strongest growth sectors of the economy. The combination of clarity and verifiable statements adds to perceived credibility and reputation.

  3. We do not report these results in the paper, but they are available from the authors upon request.

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Geppert, J., Lawrence, J. Predicting Firm Reputation Through Content Analysis of Shareholders' Letter. Corp Reputation Rev 11, 285–307 (2008). https://doi.org/10.1057/crr.2008.32

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  • DOI: https://doi.org/10.1057/crr.2008.32

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