International Public Lecture The Effect of Reputation on Companies
The Center for Business and Banking Studies STIE Perbanas Surabaya in collaboration with the Master of Management Study Program (Prodi) held a Public Lecture entitled "Does Reputation Matter for Firm Risk in Developing Countries" on Saturday, March 13, 2021. Taking place through Zoom media, this event presented speakers from Universiti Malaysia Sarawak, Malaysia, Associate Prof. Dr. Evan Lau.
In the presentation via virtual, Associate Prof. Dr. Evan Lau conducted a study to examine the effect of company reputation on company risk in developing countries with a sample of 256 Indonesian companies for the period 2011 to 2015. This study uses a two-step approach to the Generalized Methods of Moment (GMM).
His research resulted in five important findings, namely: (a) Companies with a lower total risk (share return volatility) and lower tail risk, however, have no significant effect on default risk; (b) Highly leveraged firms use reputation leverage for less total risk, tail risk, and default risk; (c) Companies with low leverage enjoy only less reputational effect on total risk, but no reputational effect on tail risk and default risk; (d) Companies with high profitability take advantage of reputation to reduce tail risk and default risk; (e) Companies with low profitability have less tail risk when their reputation is high. This evidence contributes to the literature by uncovering an important and previously unidentified determinant of risk, namely reputation. It offers stakeholders insight that reputation matters.
Associate Prof. Dr. Evan Lau concluded that reputation is an important factor for market-based risk, especially for emerging financial markets like Indonesia. Second, reputation does not affect the risk of default which implies that the company's bad reputation will not hurt financially. In addition, the findings show that different loan rates and different rates of return will have different reputational effects.
He continued, the company must strategize its reputation to get better risk exposure in financial markets. Although overall reputation does not affect financial performance, companies with high loans and companies with high profitability still need a high reputation to reduce their risk of default. (eco / public relations)