Abstract

The paper investigates corporate governance mechanisms and the voluntary disclosure of intangible assets as determinants of corporate reputation. Reputation scores from Management Today Britain’s “Most Admired Companies” 2004 survey are applied as a measure of corporate reputation. A content analysis method is applied to UK 2003/2004 annual reports in establishing the voluntary disclosure index which consists of structural, relational and human capital attributes. This paper suggests that when the resource based view of the firm is applied together with signalling theory, both the presence and disclosure of corporate governance structures and intangible resources is important if markets are to acknowledge a firm’s quality and reputation; the agency approach is twofold, on the one hand the existence of governance structures allows firms to draw on various corporate governance mechanisms that may align directors’ interests with the firm’s objectives; on the other hand, governance mechanisms may enhance accountability and transparency through disclosure and therefore mitigate risks associated with asymmetry of information. The results of the analysis indicate that financial performance and growth enhance corporate reputation whereas directors’ share ownership and executive remuneration appear to hinder the development and maintenance of corporate reputation. The presence of financial expertise on the audit committee is a governance mechanism that appears to be employed by firms whose strategy comprises building and developing corporate reputation. In addition, maintenance of lower voluntary disclosure of intangible assets appears to appeal to firms with higher levels of corporate reputation whereas, although the relationship is weaker, higher levels of financial gearing lead to lower corporate reputations as perceived by stakeholders. Furthermore, the results indicate that the proportion of experienced non-executive directors to total directors is insignificant in explaining the variation in corporate reputation. Management strategies differ significantly as they may be tailored to build and develop corporate reputation or tailored to maintain such reputations once attained.

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