Corporate Reputation Review
Media Reputation of a Firm and Extent of Trade
Corporate Reputation Review,
Vol. 17, No. 1, pp. 28–45
© 2014 Macmillan Publishers Ltd.,
1363-3589
Volume 17 Number 1
Credit Supply
Machteld Van den Bogaerd
KULeuven, Faculty of Economics and Business @HUBrussel, Brussels, Belgium
Walter Aerts
University of Antwerp, Antwerp, Belgium
Tilburg University, Tilburg, The Netherlands
ABSTRACT
A positive corporate reputation is generally taken to
be a valuable intangible resource leading to competi-
tive advantage. In this paper we examine the asso-
ciation between a firm's media reputation and the
amount of trade credit given in a sample of listed UK
firms. We argue that media reputation is instru-
mental in mitigating customer information asym-
metry. Consistent with expectations, our results
show that a firm's willingness to extend trade credit
to its customers is inversely related to its media
reputation. The better its reputation, the less trade
credit it allows. Moreover, the effect of media repu-
tation on trade credit supply is stronger for younger
firms and smaller firms, suggesting that media repu-
tation is more effective in reducing trade credit given
for firms lacking a well-established product perfor-
mance reputation. These results document one of the
ways in which corporate reputation, as an intangible
resource, creates value for a firm.
Corporate Reputation Review (2014) 17,
28–45. doi:10.1057/crr.2013.24
KEYWORDS: information asymmetry; media
reputation; trade credit supply
INTRODUCTION
A favourable corporate reputation is generally
taken to be a valuable intangible asset that
www.palgrave-journals.com/crr/
provides a sustainable competitive advantage
and enhances firm performance (Barney,
1991; Hall, 1992; Fombrun and Shanley,
1990). In this regard, Roberts and Dowling
(2002) show that firms with a relatively good
reputation are better able to sustain superior
profitability over time. In this paper we argue
that a firm’s reputation may contribute to its
financial performance through its effect on
trade credit supply, essentially by mitigating
customer information asymmetry with regard
to the quality of purchased goods. As
customers are generally not able to secure
themselves against product quality defects,
customer uncertainty in this regard may
inhibit future sales.
Reputation is mainly about perception.
Central to the concept of reputation are the
perceptions held by relevant publics and by
society at large. In this study, we use public
media data to assess the generalized percep-
tion of a firm’s reputation. More particularly,
we focus on reputation as transpiring through
media coverage and media evaluations as one
of the most salient and prominent sources
of reputation perceptions. We assess a firm’s
media reputation by content analysing the
news articles on a focal firm over a period of
5 years. By identifying and aggregating
favourable and unfavourable articles on a

focal firm, we construct an overall media
reputation measure and analyse its asso-
ciation with the firm’s trade credit supply,
measured as days receivables outstanding
(or the average number of days of credit
granted by the firm after a sale). We argue
that a positive reputation negatively affects
information asymmetry between a firm
and its customers and thus allows the firm
to economize on trade financing costs
by cutting short trade credit supply. More-
over, using age and size as proxies for a
firm’s product reputation, we examine the
interdependency between overall media
reputation and more specific product
reputation. Our results show a significant
negative association between a firm's media
reputation and its willingness to extend
trade credit. This relationship is signi-
ficantly moderated by a firm’s age and by
firm size.
This paper contributes to the corporate
reputation literature by documenting signi-
ficant economic consequences of a firm’s
overall media reputation and its substitutory
role for more specific product quality
reputation. Second, the paper adds to the
corporate finance literature by showing that
media reputation affects a firm’s trade credit
supply, suggesting that a firm’s overall
reputation is instrumental to a firm’s work-
ing capital management. Next, our results
are informative for both finance and
accounting subjects and processes in which
information asymmetry between a firm and
its stakeholders plays a key role. They
suggest that domain-specific information
asymmetry may be significantly affected by
more general reputational processes when
they are perceived as holding substitutive
clues in the absence of relationship-specific
information.
In the next section we provide a concise
literature review and develop our hypo-
theses, followed by an explanation of the
research design in the subsequent section.
We present and discuss results in the
© 2014 Macmillan Publishers Ltd. 1363-3589
Van den Bogaerd and Aerts
penultimate section and we conclude in the
final section.
LITERATURE REVIEW AND HYPOTHESIS
DEVELOPMENT
Trade Credit Supply
In the literature four main theoretical
arguments have been put forward to explain
why a firm extends trade credit to its cus-
tomers. First, due to credit rationing, a firm
may wish to support customers by financing
the customer’s purchases at a lower cost than
financial institutions would (Schwartz, 1974).
By doing so, the firm may strengthen its
alliance with customers, leading to increased
(future) sales (Petersen and Rajan, 1994,
1995; Summers and Wilson, 1997, 1999;
Paul and Boden, 2008, Giannetti et al.,
2011). Second, from a transaction costs
perspective, trade credit is more likely to be
extended if the cost of supplying both
products and finance from a single source is
lower than through separate operations
(Mian and Smith, 1992). In this regard, cost
advantages may arise from: credit collection –
if it comes to non-payment, the firm may be
able to resell its products at a more favourable
price than financial institutions would; credit
evaluation – the firm may have superior
customer information to assess customer
credit standing (Petersen and Rajan, 1997;
Ng et al., 1999; Paul and Boden, 2008); and
the fact that trade credit allows to smoothen
deviations in sales by extending more trade
credit when inventories rise and, thus,
facilitates predictability of cash inflows
(Emery, 1988; Choi and Kim, 2003; Paul
and Boden, 2008). A third line of reasoning
argues that a firm may want to use trade
credit to price discriminate between cus-
tomers by extending more trade credit or by
offering higher cash discounts (Meltzer,
1960; Schwartz and Whitcomb, 1978; Mian
and Smith, 1992; Petersen and Rajan, 1997;
Paul and Boden, 2008). In this regard,
Vol. 17, 1, 28–45 Corporate Reputation Review 29
 Media Reputation of a Firm and Extent of Trade Credit Supply
Petersen and Rajan (1997) suggest that firms
with high margin products have stronger
incentives to extend trade credit in order to
generate additional sales. Finally, the theoret-
ical perspective on trade credit supply that we
will capitalise on in this research emphasizes
information asymmetry with regard to a
firm’s product quality (Smith, 1987). As
customers are generally not able to insure
themselves against product malfunctioning or
inferior product quality, asymmetric infor-
mation regarding product quality may be a
significant impediment to obtain sales. Given
such information asymmetry, firms have
considerable incentives to extend trade
credit to customers in order to provide them
the opportunity to verify product quality
before payment (Pike et al., 1998). In this
regard, trade credit is a way to allow a repu-
tation for good product quality to establish.
Firms, realizing that they have to establish
a reputation for product quality in order to
generate repeated sales and establish longer-
term customer relationships, may well use
trade credit to provide an implicit product
quality assessment (Smith, 1987; Long
et al., 1993; Ng et al., 1999; Pike et al., 2005;
Van Horen, 2007). If the firm allows the
customer the ability to assess the quality of
its products before payment, the customer
will be able to absorb part of the product
quality information asymmetry. Consistent
with these basic arguments, Long et al. (1993)
document that smaller firms with a longer
production lead time and firms producing
products where quality requires a longer
assessment period offer more trade credit.
Conversely, trade credit supply would be
redundant to cope with customer informa-
tion asymmetry, if the firm’s reputation is
already well-established.
Reputation and Media
A favourable corporate reputation is an
important intangible asset to a firm. It affects
stakeholders’ attitudes and economic choices
30 Corporate Reputation Review Vol. 17, 1, 28–45
towards a firm and, thus, may contribute to
differences in firm performance (eg, Barney,
1991; Hall, 1992, Roberts & Dowling, 2002;
Bautista Delgado-García et al., 2013). Prior
research demonstrates that a favourable
corporate reputation is associated with
economic benefits such as increased profit
margins and sales, stronger customer loyalty
and higher perceived product quality
(Sheldon, 1992; Shapiro, 1982; Weigelt and
Camerer, 1988; Caruana et al., 2006). Such
economic reputation effects tend to oper-
ate through perceptual processes, affecting
how a firm as a whole or some of its attri-
butes are perceived by relevant publics
(Deephouse, 2000; Elsbach and Kramer,
1996; Fombrun and Shanley, 1990;
Fombrun, 1996; Hall, 1992; Martins, 1998;
Rindova et al., 2005).
Fombrun (1996) defines a corporate
reputation as ‘a perceptual representation of
a company’s past actions and future prospects
that describes the firm’s overall appeal to all
of its key constituents when compared with
other rivals’ (Fombrun, 1996: 72). As an
external assessment, corporate reputation
may include several dimensions, relative to
specific expectations that stakeholders might
have towards the firm (eg, products and
services, financial performance, workplace
environment, social responsibility) and an
overall ‘net image’ as the intersection of
dimensional reputations (Bromley, 1993).
Relevant publics usually do not limit their
assessments about reputation to their specific
focus or area of concern, but often reference
positions taken by others outside of their
sphere of activity and influence. Carroll
(2004) suggests three essential components
of a firm’s reputation: (1) name recognition,
(2) a general impression of the firm and (3) a
series of (cognitive) associations. Whereas
associations cover mainly cognitive content
of dimensional impressions,1 a more general
impression is largely affective and implies
an evaluation of favourability aggregating
positive and negative valence components.2
© 2014 Macmillan Publishers Ltd. 1363-3589

It leans to what in organizational studies
is referred to as ‘tenor’ Deephouse, 2000;
Pollock and Rindova, 2003) and is consistent
with an institutional view on reputation.
Institutionalists tend to stress the more
general, affective characteristic of corporate
reputation when they argue that reputation
can be characterized as a global impression
representing how a collective perceive a firm
(Fombrun, 1996; Roa, 1994; Lange et al.
2011). The institutional perspective portrays
reputation as being built through infor-
mation exchanges and social influence among
various actors interacting in an organizational
field. In this vein, reputation reflects pro-
minence or the collective awareness and rec-
ognition that an organization has accumulated
in its organizational field. Prominence is
based on general impressions of organizations
that develop largely through social influ-
ence (Rindova et al., 2005). It results in
some organizations gaining disproportionate
amounts of public attention and support on
the basis of rather general and non-specific
impressions and beliefs (Kuran and Sunstein,
1999; Rindova et al., 2005). Prominence tends
to reduce stakeholder uncertainty with regard
to a focal organization through ‘social proof’ of
its status in its organizational field (Rao et al.,
2000, 2001). The media measure of corporate
reputation that we will use in this research
capitalises mainly on prominence-based signals
to which trading partners in a business
environment may be expected to be exposed
or to have easy access to.
As institutional intermediaries, media are
important in building prominence-based
reputation signals. They are viewed as
experts, having superior access to info-
rmation on evaluating organizations (Rao,
1998). As a result, they are able to influence
the prominence of an organization in the
mind of the stakeholders, including potential
customers. News media influence stake-
holders’ opinions by their ability to focus
public attention on certain selected subjects.
Expert intermediaries’ impact on stakeholder
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Van den Bogaerd and Aerts
perception is however primarily achieved by
the evaluation of the level of achievement of
the entity reported on (Fombrun, 1996;
Rindova et al., 2005). In this regard, Carroll
(2004) reveals a direct empirical effect of a
firm’s media favourability on the firm’s
affective appeal to the public. The tone of
news media content can, thus, be expected to
affect stakeholder perception and feed, by
several social mechanisms, into an overall cor-
porate reputation (Carroll and McCombs,
2003; Carroll, 2004; Pollock and Rindova,
2003) that may mitigate overall customer
uncertainty.
Moreover, Carroll (2004) reveals signi-
ficant spillover effects of media descriptions
of specific corporate reputation attributes to
other reputation domains. For example,
increased media coverage devoted to finan-
cial performance affected public evaluations
of the firm’s products and services as well
(Carroll, 2004). Such spillover effects suggest
that a firm’s public is an active audience,
resorting to significant information pro-
cessing and sense making in arriving at
evaluative interpretations. This is in line
with one of the main themes of attribution
theory, arguing that, in the absence of
complete information, external observers
tend to make inferences about what they do
not know of an actor based on what they do
know about the actor (Kelley and Michela,
1980). When external observers hear about
specific firm events in the media, they may
not only recognize the cognitive attribute
talked about as a specific attribute of the firm,
but they are likely to make a number of
additional inferences on firm characteristics
they perceive to be complementary. In that
sense, the audience may interpret and
rationalize good financial performance
reported in the media by linking it with high-
quality products and services as a necessary
condition to be profitable. This reasoning
brings us to expect that a firm’s positive
overall media reputation will lower customer
information asymmetry and, thus, will
Vol. 17, 1, 28–45 Corporate Reputation Review 31
 Media Reputation of a Firm and Extent of Trade Credit Supply
negatively affect a firm’s incentives to extend
trade credit to its customers. So, we propose
the following hypothesis:
H1: A firm’s media reputation is negatively
associated with the extent of trade credit
given.
Einwiller et al. (2010) indicate that if
reputation is difficult to experience directly,
stakeholders will rely more on news media.
In this regard, customers lacking entity-
specific product quality experience will be
affected by prominence-based reputation
signals. Furthermore, Carroll (2004) reveals
that the impact of a firm’s media reputation
on the audience’s affective response towards
the firm is especially strong for respondents
who were not acquainted with public
signals of the firm’s reputation before.
Moreover, his research findings document
that overall media reputation is not effective
in altering affective sentiment if the respon-
dents are familiar with and knowledgeable
about the firm’s cognitive reputation
attributes, such as its products and services,
leadership, financial performance, working
environment and social responsiveness. It
suggests that general media reputation will
be less effective in reducing customer
information asymmetry when the firm has
an established product quality reputation.
For well-established firms or in a long-term
customer relationship it can be expected
that a supplier’s reputation will be based
on experienced product quality and
supporting customer service. However,
younger or less established firms may lack a
proven quality track record, forcing
customers to rely more on institutional
sources to differentiate between them. In
that sense, prominence-based corporate
reputation may be the first step in the
process of deciding whether or not to
enter in an exchange relationship. This
line of reasoning suggests that general
media reputation will be less effective in
altering trade credit supply if product
32 Corporate Reputation Review Vol. 17, 1, 28–45
reputation is already well established. So,
we hypothesize:
H2: The effect of a firm’s media reputation on
the extent of trade credit given is strength-
ened for firms without an established pro-
duct quality reputation.
DATA AND METHOD
Sample and Data Collection
The initial sample consists of all public UK
firms for which the Amadeus database
contains financial data concerning trade
credit: days of sales outstanding (DSO) and
days of payables outstanding (DPO). Our
sampling period (fiscal years 2001–2005)
precedes the financial crisis years in order to
avoid confounding effects of the financial
crisis on the hypothesized relationships, as
prior research indicates that trade credit terms
may change considerably in times of market
instability (eg, Petersen and Rajan, 1997;
Atanasova and Wilson, 2004, Love et al.,
2007; Kestens et al., 2012, Bastos and
Pindado, 2013). After eliminating financial
institutions, 268 firms with complete data
over the five-year period remain. We use the
Lexis Nexis Academic database to collect all
UK newspaper items, for each firm-year
observation. In addition, we exclude all
double news items by retaining only one
news item with the same title. In order to
avoid other-referencing,3 we only retain
news items addressing the name of the
firm at least two times. As the ‘media
favourableness’ variable that we use to proxy
for media reputation requires a minimum
number of news item observations, we
eliminate firms with fewer than 30 news
items over the five-year period. Using this
selection threshold, our relevant sample
decreases to 181 firms with a total of 54,109
firm-specific news items. Financial data are
collected from the Amadeus database. As
the selection procedure may cause a biased
© 2014 Macmillan Publishers Ltd. 1363-3589

sample, we apply the Heckman (1976, 1979)
procedure to control for sample selection bias
in the statistical analyses.
Media Reputation
We proxy for media reputation by using the
Janis-Fadner coefficient of imbalance ( Janis
and Fadner, 1965), a measure commonly
used to assess media favourableness with
regard to a firm (Deephouse, 2000; Bansal
and Clelland, 2004). It measures the relative
proportion of favourable and unfavourable
news items on a firm in the media while
controlling for the overall volume of news
items on the firm. We use a computerized
procedure to identify all relevant news items
on a firm and to code them as favourable,
unfavourable or balanced according to the
tenor of its content, using text classification
software based on the LPU-algorithm of
Liu et al. (2002, 2003), which uses artificial
intelligence to classify news items and which
has been shown to yield high accuracy rates
(Liu et al. 2002, 2003; Zhang and Zuo, 2009;
Van den Bogaerd and Aerts, 2011). Without
the need to define the specific characteristics
of the different types of news items, the
artificial intelligence algorithm develops its
own mode of operation to classify articles
according to type. Zhang and Zuo (2009)
provide evidence of the algorithm’s accuracy
by performing a real-world text classification
using the LPU-algorithm on the 10 most
popular news categories in Reuters-21578, a
popular text collection of Reuters newswire
which is often used in text classification
experiments. Depending on the category,
they achieve accuracy rates of 80–90 per-
cent. As documented in Van den Bogaerd
and Aerts (2011), we carry out an exten-
sive accuracy test. First, we search for the
1 percent most favourable and unfavourable
news items of our sample, using a manually
selected dictionary of positive and negative
words based on their occurrence in our
sample (cf. Abrahamson and Amir, 1996). In
© 2014 Macmillan Publishers Ltd. 1363-3589
Van den Bogaerd and Aerts
addition, we randomly select about 300 less
extreme news items and classify them
manually into favourable or unfavourable
news items. Subsequently, we use all these
news items (a total of 1,400 news items
existing out of the 1 percent most
favourable and unfavourable and the 300
manually categorized news items) as a
training set for the LPU-algorithm. Finally,
we manually develop a test set to measure the
accuracy of the classification. For this sample
of news items we achieve an accuracy rate of
almost 88 percent, which means that the
LPU-algorithm classifies 88 percent of the
news items reliably into a favourable,
unfavourable or balanced category.
Given the set of qualified news items for
each firm-year, we measure the coefficient of
media favourableness as follows:
MFCt = media favourableness coefficient
in year t
8
< ð f 2 - fuÞ=ðtotalÞ2 if f > u
¼ 0 if f ¼ u ð1Þ
: 2
ð fu - u Þ=ðtotalÞ if u > f
2
where: f = number of favourable news items
on a firm in a given yearu = number of
unfavourable news items on a firm in a
given yeartotal = the total number of news
items on a firm in a given year.
The media reputation coefficient cal-
culated using Equation (1) ranges from −1.0
to +1.0, where +1 indicates exclusive
positive coverage,−1 exclusive negative
coverage and 0 balanced coverage.
Empirical Models
We test the association between a firm’s trade
credit given (DSO) and its media reputation
(MFC) using the following basic empirical
model:
DSOit ¼ β0 + β1 MFCit + β2 DPOit + β3 STBloansit
+ β4 STBotherit + β5 Ageit + β6 Sizeit
+ β7 Liquidityit + β8 Profitabilityit
+ β9 Solvencyit + β10 InvTOit
+ β11 MediaCoverageit + β12 InvMillsit + εit ð2Þ
Vol. 17, 1, 28–45 Corporate Reputation Review 33
 Media Reputation of a Firm and Extent of Trade Credit Supply
In Equation (2), subscripts i and t denote firm
and year, respectively. In the empirical
model, we control for other determinants of
trade credit given, consistent with prior
literature. Additionally, we add an inter-
action term of media reputation and a proxy
for product quality reputation (firm age or
firm size) in order to test hypothesis two.
Trade credit given (DSO)
Consistent with Long et al. (1993), Deloof
and Jegers (1996) and Petersen and Rajan
(1997), we define our dependent variable
(trade credit given) as days sales outstanding
(DSO) and measure it as accounts receivable
divided by sales multiplied by 365 days.
Short-term borrowings and accounts
payable outstanding.
Long et al. (1993) and Deloof and Jegers
(1996) show that firms producing high-
quality goods tend to finance trade credit
supply by direct borrowings, like short-term
loans (STBloan, calculated as short-term
borrowing (loans) divided by sales) and other
short-term borrowings (STBother, measured
as short-term borrowing (other than loans and
trade payables) divided by sales) or to finance
their own purchases through accounts payables
(DPO, calculated as accounts payables divided
by cost of goods sold and multiplied by 365).
Therefore, we expect a positive relationship
between trade credit supply and short-term
borrowings and accounts payable.
Inventory turnover
Long et al. (1993) argue that firms with a
longer production cycle provide more trade
credit than firms with a shorter production
cycle. We expect to find a negative
relationship between the inventory turnover
(InvTO, measured as operating revenue
divided by year-end inventory) of a firm and
its trade credit supply.
34 Corporate Reputation Review Vol. 17, 1, 28–45
Firm age
Ng et al. (1999) show that a firm’s age
(measured as the natural logarithm of the
number of years since incorporation of a firm
plus one) has a significant negative effect on a
firm’s choice to extend trade credit. Petersen
and Rajan (1997), on the other hand, find a
positive relationship between a firm’s age and
the number of days sales outstanding. They
argue that the firm’s ability to extend trade
credit will depend upon its ability to raise
funds in capital markets, with older firms
having more easy access to capital markets.
Firm size
According to Ng et al. (1999), a firm’s size
(measured as the natural logarithm of total
assets or, alternatively, natural logarithm of
total sales) is significantly and negatively
related to its trade credit supply.
Liquidity and solvency
Finance theory argues that firms that obtain
funds at low cost will extend more trade
credit to their credit-constrained customers.
This suggests that highly liquid firms will
extend more credit to their customers. In a
similar vein, firms with higher solvency will
also be more able to extend trade credit to
their customers than firms having prob-
lems to meet their long-term obligations
(Schwartz, 1974; Ng et al., 1999). In this
regard, we include a liquidity proxy (current
ratio calculated as current assets divided by
current liabilities) and a solvency proxy
(calculated as equity divided by total assets)
in our model.
Gross profit margin
Petersen and Rajan (1997) argue that trade
credit can be used to price discriminate
among customers, by extending credit or
allowing higher cash discounts. They find
that suppliers with higher profit margins have
a strong incentive to make additional sales
© 2014 Macmillan Publishers Ltd. 1363-3589

without cutting the price to existing cus-
tomers. In this regard, we expect that the
higher a firm’s profit margin (measured as
gross profit margin), the more likely the firm
is to offer more credit.
Media coverage
The amount of media coverage of a firm, or
the number of news reports relating to a
specific firm within a specified period, affects
the public visibility of the firm (Pollock and
Rindova, 2003). Media coverage stands for the
number of news reports relating to a specific
firm within a specified period. The concept is
relevant for corporate reputation, as it assumes
a certain degree of public awareness, visibility
and recognition (Carroll and McCombs,
2003). A firm needs to be talked about in
order to create a context in which a public
assessment of the firm can emerge. Carroll
(2004) shows that media coverage has a strong
impact on the general public’s perception of a
firm’s standing, and even more so than either
the firm’s advertising expenditures or its own
press releases. We include the amount of media
coverage to control for differences in firm
salience, but also because media visibility
might affect the criteria by which firms are
judged, a phenomenon documented in studies
on media coverage of political leaders (Carroll
and McCombs, 2003; Krosnick and Kinder,
1990). Therefore, we will control the extent
of media exposure without directional
expectations.
Inverse Mills ratio
The Inverse Mills ratio is included in the
empirical model to control for sample
selection bias (see below).
Industry
To control for industry effects, all financial
variables are industry-adjusted by subtracting
the firm’s industry average. To eliminate
outliers, a limit of two times the standard
© 2014 Macmillan Publishers Ltd. 1363-3589
Van den Bogaerd and Aerts
deviation was used as upper and lower
boundary. Using the NACE classification,
the firms are divided into the following nine
industry groups:
1. Agriculture, hunting, forestry, mining and
quarring, electricity, gas and water supply
(NACE code 01–14, 40–41)
2. Manufacturing (NACE code 15–37)
3. Construction (NACE code 45)
4. Wholesale and retail (NACE code 50–52)
5. Hotels and restaurants (NACE code 55)
6. Transport and storage (NACE code
60–63)
7. Real estate (NACE code 70–71)
8. Computer and related activities, R&D,
other business activities (NACE code
72–74)
9. Health and social work and other com-
munity, social and personal service activ-
ities (NACE code 85, 90–93)
Panel Data Analysis
Our data set contains observations from 181
companies over a five-year period. We use
panel data techniques to analyse our
empirical models. Based on a Hausman test,
we use a random effects model.4
Selection Bias Procedure
As we eliminate firms that do not attain the
news item threshold of 30 items over the five-
year period, our results may be affected by
sample selection bias. Therefore, a correction
term (known as the Inverse Mills ratio) is
included, which is obtained by modelling the
selection mechanism (Heckman, 1976, 1979).
So we perform the following probit regression:
Prit ¼ β1 Emplit + β2 Growthit + β3 Sizeit
+ β4 Ageit + β5 Profitabilityit + β6 MTBit
+ β7 Aratingit + εit ð3Þ
where i and t denote firms and years,
respectively and Pr represents the probability
Vol. 17, 1, 28–45 Corporate Reputation Review 35
 Media Reputation of a Firm and Extent of Trade Credit Supply
that the firm attains the media attention
threshold.
Consistent with Deegan and Gordon
(1996), Carroll and McCombs (2003), Aerts
et al. (2008), we expect a firm’s media
attention to be dependent on its public
visibility (measured as the logarithm of total
assets) and its social visibility (measured as
logarithm of number of employees).
Moreover, Fang and Peress (2009) find that
value stocks (firms with a low market-to-
book ratio) receive more media attention.
Older firms tend to attract more media
attention than younger firms (with age
measured as the logarithm of years since
incorporation plus one) (Carroll and
McCombs, 2003). In addition, we expect
firms with a higher growth rate (measured as
the average rate of revenue growth over the
past five years) and stronger profitability
(proxied by return on assets, calculated as
profit before taxes divided by total assets)
to receive more media exposure. Finally,
we expect firms with an A credit rating
(a dummy variable with 1 if the firm receives
an A rating and 0 otherwise) to be more
prominent in the media than other firms.
A test of sample selection bias is performed
by running a t-test on the null hypothesis that
the coefficient of the Inverse Mills ratio is
equal to zero (Vella, 2000).
Interaction Terms
Ng et al. (1999) suggest firm age and firm size
as proxies for a firm’s product quality repu-
tation: for older and larger firms the seller’s
reputation for quality products is more likely
to be well-established. They find that both
proxies are significant negative determinants
of a firm’s choice to extend trade credit. We
expect this to be more so if size is measured
in terms of sales volume (natural log of sales).
By including an interaction effect between
media reputation and the product reputation
proxies, we allow the coefficient of these
variables to change conditional on whether
36 Corporate Reputation Review Vol. 17, 1, 28–45
or not a favourable media reputation is
present. The interaction terms will be used
to test hypothesis two.
RESULTS
Descriptives
Table 1 presents descriptive statistics on the
variables used in the empirical models. Days
of sales outstanding amounts to, on average,
66.59 days, whereas the average of days of
payables outstanding runs up to, on average,
47.60 days. The mean of the media favourable-
ness coefficient is 0.24 with a minimum value
of −0.16 and a maximum value of 1. Our
sample contains an average of nearly 41 articles
for each firm per year. Table 2 presents the
Pearson correlation coefficients between the
independent variables. The media favourable-
ness coefficient is significantly correlated with
size, profitability, days of payables outstanding,
inventory turnover and media coverage.
Although the high correlation (coefficient of
0.607) between liquidity and profitability may
suggest a multicollinearity concern, test statistics
with regard to the regression analyses indicate
that it does not materially affect our results (all
VIF-coefficients are smaller than 2).
Multivariate Results
Table 3 shows the results of the multivariate
regression models. Model 1, excluding
the media reputation variable, is the control
model.
Consistent with prior research (Long et al.,
1993; Deloof and Jegers, 1996), Model 1
shows that short-term borrowings (other
than loans) and days of payables outstanding
(DPO) are positively and significantly related
to trade credit supply. Short-term loans are
positively, but not significantly related to
days of sales outstanding. We find a negative
association between inventory turnover and
days of sales outstanding, suggesting that
firms with a longer production cycle tend to
© 2014 Macmillan Publishers Ltd. 1363-3589
 Van den Bogaerd and Aerts

Table 1: Descriptive Statistics (N = 905)

Min Max Mean Std. dev

Dependent variable
DSO 0.00 174.51 66.59 53.96
Independent variables
MFC −0.16 1.00 0.24 0.25
STBloan 0.00 1.13 0.14 0.49
STBother 0.00 1.47 0.21 0.63
DPO 0.00 146.10 47.60 49.25
Age 1.95 4.75 3.06 0.84
Size 4.36 16.60 10.79 2.33
Profitability −10.85 89.57 40.87 25.86
Liquidity 0.00 5.43 1.93 1.75
Solvency −7.62 104.54 48.46 28.04
Inventory Turnover 0.15 217.21 57.69 79.76
Media coverage 0.00 383.00 40.73 51.87

Variable definitions:
DSO = days of sales outstanding, measured as accounts receivables divided by sales multiplied by 365 days
MFC = media favourableness coefficient
DPO = days of payables outstanding, measured as accounts payable divided by costs of goods sold multiplied by 365 days
STBloan = short-term borrowing (loans) divided by sales
STBother = short-term borrowings (other than loans and trade payables) divided by sales
Age = natural logarithm of the number of years since incorporation of the firm plus one
Size = natural logarithm of total assets
Profitability = gross profit margin
Liquidity = current ratio calculated as current assets divided by current liabilities
Solvency = equity divided by total assets
Inventory Turnover = operating revenue divided by inventory
Media coverage = number of relevant articles for each firm-year

extend more trade credit to their customers
(Long et al., 1993). Firm age and firm size
do not show a significant association with
days of sales outstanding. Liquidity has an
expected positive effect on receivables: the
more liquid a firm, the more trade credit it
will extend to its customers. Moreover, more
liquid firms have larger financial capacity to
offer delay of payment. Solvency is positively
but not significantly related to days of sales
outstanding.
Firm profitability shows the expected
positive and strongly significant impact on
the dependent variable. This is consistent
with the findings of Petersen and Rajan
(1997) who argue that firms with higher
profit margins benefit relatively more from
generating additional sales through credit
supply. Model 1 in Table 3 also reveals a
negative, but insignificant association of
media coverage and trade credit supply. The
Inverse Mills ratio is not significant which
suggests that selection bias is not significantly
affecting our results.
Model 2 in Table 3 includes the media
reputation variable. Consistent with H1, the
media reputation coefficient is strongly
significant and negatively associated with the
number of days of sales outstanding. Con-
sistent with expectations, it indicates that

© 2014 Macmillan Publishers Ltd. 1363-3589 Vol. 17, 1, 28–45 Corporate Reputation Review 37
 38

Media Reputation of a Firm and Extent of Trade Credit Supply

Corporate Reputation Review

Table 2: Pearson Correlation Coefficients Between the Independent Variables

MFC DPO STB:loans STB:other Age Size Liquidity Profitability Solvency InvTO Media Coverage

MFC 1 −0.085** −0.035 −0.044 0.049 0.261*** −0.002 0.079** 0.012 0.062* 0.237**
DPO 1 0.229** 0.233** −0.162** −0.070** 0.107** 0.029 0.058 −0.065* −0.092**
STB:loan 1 0.196** −0.042 −0.0135*** −0.109** 0.008 −0.111** −0.030 −0.023
STB:other 1 −0.080** −0.053* 0.098** 0.007 0.070* −0.140** −0.061*
Age 1 0.284*** −0.064* −0.009 0.033 −0.022 0.123**
Vol. 17, 1, 28–45

Size 1 −0.0641 0.075 0.081* 0.1575*** 0.1923***

Liquidity 1 0.607** 0.141** −0.115** 0.005
Profitability 1 0.218** −0.026 0.111**
Solvency 1 −0.096** 0.027
InvTO 1 0.066*
© 2014 Macmillan Publishers Ltd. 1363-3589

Media coverage 1

*, **,***Significantly correlated at the α = 0.10; 0.05; 0.01 level, respectively (two-tailed)

Variable definitions:
DSO = days of sales outstanding, measured as accounts receivables divided by sales multiplied by 365 days
MFC = media favourableness coefficient
DPO = days of payables outstanding, measured as accounts payable divided by costs of goods sold multiplied by 365 days
STBloan = short-term borrowings (loans) divided by sales
STBother = short-term borrowings (other than loans and trade payables) divided by sales
Age = natural logarithm of the number of years since incorporation of the firm plus one
Size = natural logarithm of total assets
Profitability = gross profit margin
Liquidity = current ratio calculated as current assets divided by current liabilities
Solvency = equity divided by total assets
InvTO = operating revenue divided by year-end inventory
Media coverage = number of relevant articles for each firm-year
 Van den Bogaerd and Aerts

Table 3: Panel Data Analysis on Days of Sales Outstanding (DSO)

Variables Expected Model 1 Model 2 Model 3 Model 4

DPO + 0.212*** 0.209*** 0.206*** 0.212***

(6.31) (6.22) (6.14) (6.33)
STB:loan + 0.965 0.993 0.966 1.008
(0.47) (0.48) (0.47) (0.49)
STB:other + 0.156*** 0.156*** 0.156*** 0.155***
(7.31) (7.29) (7.34) (7.27)
Age +/− 1.151 1.166 0.983 1.054
(0.59) (0.60) (0.51) (0.54)
Size +/− −0.374 −0.272 −0.268 −0.194
(−1.47) (−1.04) (−1.03) (−0.74)
Liquidity + 1.944* 1.963* 2.008* 1.951*
(1.78) (1.80) (1.85) (1.80)
Profitability + 0.380*** 0.385*** 0.378*** 0.394***
(6.93) (7.01) (6.91) (7.20)
Solvency + 0.058 0.056 0.056 0.042
(0.92) (0.90) (0.91) (0.67)
InvTO − −0.038* −0.037* −0.036* −0.039*
(−1.76) (−1.73) (−1.70) (−1.81)
Media coverage +/− −0.038 −0.030 −0.031 −0.041
(−1.52) (−1.18) (−1.20) (−1.61)
MFC° − − −10.471** −9.182* −11.805**
(−1.71) (−1.50) (−1.93)
MFC×Age° +/− − − 16.670** −
(2.32)
MFC×Size° +/− − − − 2.651***
(2.68)
InvMills +/− −9.328 −8.066 −6.777 −8.684
(−1.19) (−1.02) (−0.86) (−1.10)
Constant 1.606 1.149 0.639 0.158
(0.63) (0.45) (0.25) (0.06)
Number of observations 905 905 905 905
Number of years 5 5 5 5
Overall R2 0.2066 0.2091 0.2139 0.2155
Change R2 0.0025** 0.0048** 0.0064**

*, **, ***significantly different from zero at the α = 0.10, 0.05, 0.01 level (two-tailed); ° : one-tailed test
This table reports the results of the following panel regression:

DSOit ¼ β0 + β1 MFCit + β2 DPOit

+ β3 STBloansit + β4 STBotherit + β5 Ageit
+ β6 Sizeit + β7 Liquidityit + β8 Profitabilityit
+ β9 Solvencyit + β10 InvTOit
+ β11 MediaCoverageit + β12 InvMillsit + εit ð2Þ

The dependent variable is the period of trade credit provided, measured by the days of sales outstanding (DSO). The explanatory
variables include days of payables outstanding (DPO), short-term loans (STB:loan), other short-term borrowings (STB:other), firm’s
age measured by the natural logarithm of age plus one (Age), firm’s size measured by the natural logarithm of total assets (Size),
liquidity measured by the current ratio (Liquidity), profitability measured by the gross margin (Profitability), solvency measured by
equity divided by total assets (Solvency), inventory turnover measured by operating revenue divided by year-end inventory (InvTO),
media coverage measured by the total number of relevant news items for each firm-year (Media coverage), media reputation measured
by the media favourableness coefficient (MFC). Using the inverse mills (InvMills) we control for sample selection bias. Models 3 and 4
also include the interaction term of media reputation with firm age and size (MFC×Age, MFC×Size).

© 2014 Macmillan Publishers Ltd. 1363-3589 Vol. 17, 1, 28–45 Corporate Reputation Review 39
 Media Reputation of a Firm and Extent of Trade Credit Supply
firms with a positive media reputation tend
to extend less trade credit to their customers.
It suggests that firms lacking a positive media
reputation are more likely to use trade credit
as a means of convincing customers that they
deliver high-quality products. The overall R2
of model 2 rises significantly relative to the
control model, indicating that including
media reputation in the regression model
significantly improves model fit. Overall,
these results strongly support H1 on the
association of a firm’s overall media repu-
tation and its trade credit supply.
To check whether media reputation is
endogeneously determined, we apply an
Hausman test by estimating media
reputation using the following model:
MFCit ¼ β1 Emplit + β2 Growthit + β3 Sizeit
+ β4 Ageit + β5 Profitabilityit + β6 MTBit
+ β7 Aratingit + β8 - 15 Industrydummies
+ β16 - 19 Yeardummies + εit
where i and t denote firms and years,
respectively. The t-value of the Hausman
test amounts to 0.2623, which indicates that
the media favourableness variable is not
endogenously determined.
In order to check for heteroskedasticity,
we compute a likelihood ratio test pro-
cedure. However, the test results reveal that
heteroskedasticity does not affect our results.
We control for autocorrelation by com-
puting a Durbin-Watson test and the results
show that autocorrelation does not bias our
results. Finally, we replace firm size measured
by the natural logarithm of sales with the
natural logarithm of total employees as an
alternative size variable and our results
remain qualitatively unchanged.
Models 3 and 4 in Table 3 include the
interaction terms of media reputation and the
variables used as a proxy for the extent to
which a firm is expected to have an
established product quality reputation. Model
3 integrates the interaction of the firm’s media
reputation coefficient with firm age. The
40 Corporate Reputation Review Vol. 17, 1, 28–45
significantly positive sign of the interaction
coefficient suggests that the negative asso-
ciation between the media reputation of a
firm and its days of sales outstanding does not
hold for older firms which can be expected
to have a more established product quality
reputation. Moreover, integrating the inter-
action term of firm age and media reputation
significantly improves model fit. In addition,
the results shown in Model 4 of Table 3
indicate a positive and significant interaction
effect between media reputation and firm
size, which suggests that the negative
association between a firm’s media repu-
tation and its trade credit supply does not
hold for larger firms. Once again, including
the interaction term of firm size and media
reputation significantly improves model fit.
To further check the impact of firm age
and firm size as product quality reputation
proxies on the association of media repu-
ð4Þ tation and days of sales outstanding, we split
our sample, using the sample median of firm
age or firm size as cut-off point. The results
for age (reported in Table 4) confirm that the
association of media reputation and trade
credit supply only holds for younger firms.
Table 4 also shows the result for the sample
split by firm size. It indicates that the negative
association of media reputation and trade
credit supply is not preserved for larger
firms. Overall, these results provide strong
support for H2: the effect of a firm’s media
reputation on trade credit given is especially
valid for younger or smaller firms who are
less likely to enjoy a well-established product
quality reputation.
The lack of significant effects of media
coverage in our models downplays Pollock
and Rindova’s (2003)’s argument that the
extent of media exposure as such may already
lead to favourable impressions of a firm
through a number of socio-cognitive pro-
cesses like increased familiarity with and
subsequent liking of the object, increased
acceptance and reduction of perceived
riskiness (Harrison, 1977; Hawkins and
© 2014 Macmillan Publishers Ltd. 1363-3589
 Van den Bogaerd and Aerts

Table 4: Panel Data Analysis on Days of Sales Outstanding (DSO)

Variables Age < Median Age > Median Size < Median Size > Median

DPO 0.167*** 0.269*** 0.223*** 0.219***

−3.76 −5 −5.1 −4
STB:loan 4.133 −5.594 3.888 −6.394
−1.6 (−1.53) −1.57 (−1.57)
STB:other 0.148*** 0.156*** 0.100*** 0.211***
−5.13 −4.86 −3.29 −7.08
Age 10.418** −5.694* −0.011 3.666
−2.19 (−1.81) (−0.01) −1.59
Size −0.407 0.161 −0.021 −0.643*
(−1.05) −0.45 (−0.05) (−1.87)
Liquidity 0.526 2.954* 0.577 3.943**
−0.36 −1.8 −0.4 −2.35
Profitability 0.402*** 0.344*** 0.378*** 0.438***
−5.29 −4.28 −5.15 −5.07
Solvency 0.257*** −0.158* 0.133 −0.077
−2.87 (−1.78) −1.56 (−0.81)
InvTO −0.002 −0.086*** −0.055** −0.021
(−0.06) (−2.87) (−1.98) (−0.57)
Media coverage −0.074* −0.001 −0.079* −0.017
(−1.65) (−0.05) (−1.74) (−0.55)
MFC° −19.733** −1.151 −16.368** −7.872
(−2.14) (−0.15) (−1.78) (−0.94)
Constant 3.858 3.379 −3.590* 0.73
−1.08 −1.34 (−1.80) −0.37
Number of observations 450 455 480 425
Number of years 5 5 5 5
Overall R2 0.2649 0.1911 0.2079 0.2455

*, **, ***significantly different from zero at the α = 0.10, 0.05, 0.01 level (two-tailed); ° : one-tailed test
This table reports the results of the following panel regression:

DSOit ¼ β0 + β1 MFCit + β2 DPOit

+ β3 STBloansit + β4 STBotherit + β5 Ageit
+ β6 Sizeit + β7 Liquidityit + β8 Profitabilityit
+ β9 Solvencyit + β10 InvTOit
+ β11 MediaCoverageit + β12 InvMillsit + εit ð2Þ

The dependent variable is the period of trade credit provided, measured by the days of sales outstanding (DSO). The explanatory
variables include days of payables outstanding (DPO), short-term loans (STB:loan), other short-term borrowings (STB:other),
firm’s age measured by the natural logarithm of age plus one (Age), firm’s size measured by the natural logarithm of total assets
(Size), liquidity measured by the current ratio (Liquidity), profitability measured by the gross margin (Profitability), solvency
measured by equity divided by total assets (Solvency), inventory turnover measured by operating revenue divided by year-end
inventory (InvTO), media coverage measured by the total number of relevant news items for each firm-year (Media coverage),
media reputation measured by the media favourableness coefficient (MFC).

© 2014 Macmillan Publishers Ltd. 1363-3589 Vol. 17, 1, 28–45 Corporate Reputation Review 41
 Media Reputation of a Firm and Extent of Trade Credit Supply
Hoch, 1992; Heath and Tversky, 1991). Our
results show that it is not the amount of
media coverage that counts, but its general
tenor. In this regard we also tested our
models excluding the media coverage
variable and our results remain qualitatively
unchanged.
CONCLUSION
In this paper we investigate the association of
a firm’s overall media reputation and its trade
credit supply. Previous research argues that
firms may use trade credit to mitigate cus-
tomer information asymmetry and establish a
positive product quality reputation. Using a
sample of listed UK firms for the period
2001–2005, we test whether a firm’s overall
media reputation affects customer infor-
mation asymmetry and allows firms to
economize on trade credit given. Our results
reveal that a firm’s positive overall media
reputation negatively affects a firm’s incen-
tives to extend trade credit to its customers
and suggest that customer information
asymmetry is indeed affected by a firm’s
media reputation. Moreover, our results
indicate that the association of media repu-
tation and trade credit supply is especially
significant for younger firms and smaller
firms who are less likely to enjoy an
established product quality reputation.
This paper makes a number of contri-
butions to the literature. First, it contributes
to the corporate reputation literature by
documenting significant economic conse-
quences of a firm’s overall media reputation
and its substitutory role for more specific
product quality reputation. Second, the
paper adds to the corporate finance literature
by showing that media reputation affects
a firm’s trade credit supply, suggesting that
a firm’s overall reputation is instrumental to a
firm’s working capital management. Next,
our results are informative for both finance
and accounting subjects and processes in
which information asymmetry between a
42 Corporate Reputation Review Vol. 17, 1, 28–45
firm and its stakeholders plays a key role.
They suggest that domain-specific infor-
mation asymmetry may be significantly
affected by more general reputational pro-
cesses when they are perceived as holding
substitutive clues in the absence of
relationship-specific information.
NOTES
1 The reputation literature is quite equivocal on the
cognitive dimensions used to describe reputation
content. A common (literature review-based)
attribute list is offered by Gardberg and Fombrun
(2002), comprising six attributes of reputation:
Overall corporate appeal, Products and services,
Vision and leadership, Financial performance,
Workplace environment and Social responsibility.
Overall corporate appeal would coincide with the
overall affective dimension, whereas product
reputation (Products and services) would be one of
the five cognitive dimensions.
2 In this regard, Fombrun and Shanley (1990) show
that firms with more positive and non-negative
news coverage enjoyed higher rankings in Fortune
Magazine’s ‘Most Admired of the Year’ special
issue.
3 Other-referencing refers to cases where firm names
are mentioned in a subsidiary role, as a kind of
comparison to the featured main firm.
4 The random effects procedure assumes that indi-
vidual effects are uncorrelated with the independent
variables. If the random effects assumption holds,
the random effects model is more efficient than the
fixed effects model. However, if this assumption
does not hold (ie, if the Hausman test fails), the
random effects model is not consistent. The
Hausman test compares a more efficient model
with a less efficient but consistent one, to make
sure that the results of the more efficient model are
also consistent. The Hausman test results in an
insignificant p-value, which means that it is safe to
use random effects.
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