Echo Research: About 30% Of Company Value Is Attributed To Reputation

(MENAFN- PRovoke) According to the latest Reputation Dividend report from Echo Research, corporate reputation accounts for 28% of the market cap across the S&P 500, equivalent to $11.9 trillion, a 4.3% year-over-year increase over last year.

In the UK, meanwhile, reputation accounts for 30% of market capitalisation across FTSE 350 companies, equating to £719 billion in value, up by 3.8% compared to 2023.

Echo's Reputation Dividend methodology focuses on the gap between the tangible assets of the companies involved and the market capitalization of those companies. That gap is attributable to intangible assets, many of which the company believes can be broadly defined as reputational factors-from quality of management to people management to social responsibility.

Sandra Macleod, CEO of Echo Research says the Reputation Dividend numbers are derived from“a multi-step process based on understanding market performance and locus of interests... using several iterations of regression analysis and quality data control to understand what is impacting market cap and assessing the delta between the reported financials (across some 49 commonly reported data) and intangibles.

“With that understanding and 'master framework', each company is then analysed (again with regression modelling) with their own data sets (financial and reputational from the Most Admired tracking by way of proxy) to determine their specific reputation contribution and unique drivers of value.”

In addition to providing an estimate of how much reputational factors contribute to company valuation in the US and the UK, the Reputation Dividend report identifies the companies that benefit the most in each market.

In the US, technology companies dominate the top 10, with the top three spots in terms of reputation value occupied by Nvidia, Amazon and Apple, while Microsoft and Alphabet also figure in the top 10. The only non-tech company in the top five is United Health Group, while Eli Lilly comes in at number seven, demonstrating the power of reputation in the health sector.

In the UK, meanwhile, the top 10 includes heavy representation for the extractive industries: Royal Dutch Shell and BP and number one and three respectively, with Rio Tinto also cracking the to 10, all with more than 50% of their market value attributable to reputational factors. Pharmaceutical company AstraZeneca is number three, while food and beverage brands Diageo and Unilever round out the top five.

Macleod believes that in turbulent geopolitical and economic times, reputation can be stabilizing force, a“vital anchor for investor confidence.”

“Reputation plays a critical role in bolstering investor confidence, attracting top talent, and securing customer loyalty,” she says.
“Despite ongoing political and economic volatility, corporate reputation provides a stabilizing force for investors and a significant driver of shareholder confidence. Firms that maintain a strong reputation are more likely to experience stable stock prices and premium valuations, even in times of market volatility.”

One particularly interesting aspect of the research focuses on those factors that make the most significant contribution to reputation. In the US, for example, the four largest contributory factors are kong-term investment, people management, financial soundness, and use of corporate assets.

In the UK, meanwhile, long-term investment is also first, but quality of products and services is the second most important contributor, ahead of financial soundness and quality of management,

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