Corporate reputation 'accounts for one third of stock market valuations'

The world's top 15 stock markets owe more than a third of their valuation to corporate reputations, with that figure rising to 47 per cent for the UK's FTSE100, new research suggests.

Photo by Markus Spiske on Unsplash
Photo by Markus Spiske on Unsplash

The findings from Havas' AMO comms consultancy network put the value of corporate reputation to shareholders at $16.77 trillion across the 15 indicies.

The report applied valuation techniques from Reputation Dividend, which measures the value of corporate reputation, to gauge the extent to which a company’s corporate reputation affects its share price beyond what might reasonably be explained by financial performance.

The report used data across 15 national leading stock market indices, combining financial metrics from Bloomberg and Morningstar, plus non-financial factors including research-sourced measures of corporate reputation to assess what makes up the value of a listed company. The report also assessed the impact of specific factors driving corporate reputations.

It found that in the 12 months to 31 March 2019, corporate reputations accounted for 35.3 per cent of total capitalisation of the world’s top 15 stock market indices, representing $16.77 trillion in shareholder value.

Almost eight in 10 companies surveyed saw their stock value shored up by a positive corporate reputation, boosting their combined market capitalisation by $17.2 trillion. Over the same period, the value associated with corporate reputation for the 1,611 corporations that comprise the top 15 global indices rose by 2.1 per cent, even as the indices’ total gross market capitalisation fell 0.5 per cent.

The four most important factors driving reputation contribution to stock prices around the world were: investor perceptions of a company’s long-term investment value (accounting for 13 per cent of reputational value); quality of management (12.5 per cent); financial soundness (12.2 per cent) and; ability to manage people (11.7 per cent). It suggests other factors such as governance or social responsibility do not play as an important role in delivering value.

Of the 15 leading national stock market indices, the UK’s FTSE 100 saw reputational factors contribute 47 per cent to their overall market capitalisation. The Russian market’s RTS Index saw the lowest average contribution at just 13.8 per cent.

The report found the factor with the greatest potential to boost overall value was global competitiveness, in which a five per cent increase in positive investor perceptions would deliver an estimated 82 basis points rise in market capitalisation.

Behind this is long-term investment value (+76 basis points), innovation (+71 basis points) and quality of goods and services (+69 basis points).

Angus Maitland, co-chairman of AMO and founder of Maitland/AMO, said: "In a world of growing complexity and rapid-fire stock market volatility, investors are increasingly sensitive to the strength of a company’s reputation as they assess their models. The new AMO report shows precisely how valuable a corporate reputation can be and provides useful indicators of how specific reputational factors drive those valuations.

"When times get tough, it will be the companies with stronger, more balanced corporate reputations that will ride the ensuing storm more effectively, protect value and come out on top. Understanding the triggers that will protect and enhance the value of their company’s reputation is crucial to managers of any listed company."

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