Sep 04, 2024
DOI: https://doi.org/10.1016/j.irfa.2024.103165
Published in: International Review of Financial Analysis
Corporate reputation is a paramount driver of value creation and competitive advantage in the 21st century. Motivated by the importance of cash flows and the under-researched nature of their volatility in the corporate finance literature, we investigate the impact of corporate reputation on cash flow volatility. We developed unique hand-collected data from the Fortune world's most admired companies for a sample of U.S. companies from 2014 through 2020. The findings show that there is a negative relationship between corporate reputation and cash flow volatility. Our additional analyses demonstrate that the negative relationship between corporation reputation and cash flow volatility is stronger for firms with a higher company beta, higher earnings, and lower short-term liquidity. Our findings imply that improving corporate reputation can decrease the risk levels associated with operating performance.
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