Corporate reputation and profitability. Is a company’s reputation (a subjective assessment) related to objective measures of corporate performance such as its profitability? One study of this relationship examined the records of 154 Fortune 500 firms.18 Corporate reputation was measured on a scale of 1 to 10 by a Fortune magazine survey. Profitability was defined as the rate of return on invested capital. Figure 10.19 contains SAS output for the regression of profitability (PROFIT) on reputation score (REPUTAT). The format is very similar to the Excel and Minitab output we have seen, with minor differences in labels. Exercises 10.65 through 10.72 concern this study. You can take it as given that examination of the data shows no serious violations of the conditions required for regression inference.

Question 10.65

10.65 Significance in two senses.

  1. Is there good evidence that reputation helps explain profitability? (State hypotheses, give a test statistic and -value, and state a conclusion.)
  2. What percent of the variation in profitability among these companies is explained by regression on reputation?
  3. Use your findings in parts (a) and (b) as the basis for a short description of the distinction between statistical significance and practical significance.

10.65

(a) . There is significant evidence that reputation explains profitability. (b) . (c) Though the data are very statistically significant, reputation only explains 19.36% of the variation in profitability, so there are likely other predictors that can also predict profitability.