Corporate reputation and financial performance of companies listed in the Nairobi Stock Exchange

Abstract

The PriceWaterhouseCoopers has been carrying out surveys on CEO’s Most Respected Companies in East Africa since 1999. These companies also continue to showcase their financial soundness as they have been profitable over the years. No study has been undertaken to date to establish the link between these companies’ reputation and their financial performance in Kenya. A study on Kenya is necessary because the business environment in Kenya is quite different from those of the developed nations where studies on reputation have been carried out before. The objective of this study was to establish the relationship between company’s corporate reputation and financial performance. This was a relational study of listed companies on the Nairobi Stock Exchange market. The target firms were the 56 firms listed on the NSE. The respective companies were asked to identify their major customers who were approached to take part in the study. Thus, there were 140 employees and 140 customers in the final sample size. Data was collected using questionnaires. These questionnaires were administered using drop and pick later method. Secondary data, especially the financial performance were obtained from the companies’ financial statements. Descriptive statistics such as mean scores and standard deviations were used to analyze data using the SPSS. Further, correlation analyses were used to establish the relationship between the independent variable and firm performance as measured by sales growth and return on assets. The study found no significant differences between employee and customer view of corporate reputation. The study also found that the corporate reputation gap for firms listed on the Nairobi Stock Exchange is low. It was also noted that corporate reputation influenced both future sales and return on assets but these relationships were insignificant. The study concludes that when the employee perception of the firm reputation exceeds that of the customers (positive gap), there is much more favorable company performance and the converse is also true. These results have several important implications. The results reveal that it is shortsighted to focus entirely on projects designed to increase reputation among consumers, as marketing managers may do. There is also need to question the previous emphasis on alignment between consumer and employee perceptions. This study suggests that the alignment of affective associations between employees and customers should be seen in a very different way. If, over time, employee perceptions can be consistently kept above those of customers, this and not the alignment of the two are optimal.