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.
10.72 Correlation.
The regression in Figure 10.19 takes reputation as explaining profitability. We could as well take reputation as in part explained by profitability. We would then reverse the roles of the variables, regressing REPUTAT on PROFIT. Both regressions lead to the same conclusions about the correlation between PROFIT and REPUTAT. What is this correlation ? Is there good evidence that it is positive?