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<p>We examine the effect of reputation loss on corporate financial management. We measure reputation loss by considering negative media coverage. Harmful news damages firm reputation, increasing operational risk. We predict managers to respond to this increased risk by buffering precautionary cash savings, lowering financial leverage, and substituting long for short term debt. Results show that an increase in negative press coverage increases cash holdings in the subsequent quarter by 4.12%, or $65&#xa0;million on average. We find larger cash increases for firms with higher interdependencies of investment opportunities with rival firms and for financially constrained firms, comporting with the notion that such firms experience higher expected utility from increased cash buffers. Further, we find that reputation loss induces firms to substitute long-term for short-term debt, suggesting that firms entering in the eye of a reputation storm prefer betting on the real option to refinance at future lower long-term rates. Our study contributes to corporate finance literature by providing novel insights on how corporate financial management responds to increased reputation concerns.</p>

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Reputation loss and corporate financial management

  • 期刊论文

  • 发表日期：

    2026年6月18日

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  • Christof Beuselinck,
  • Arnt Verriest

摘要

We examine the effect of reputation loss on corporate financial management. We measure reputation loss by considering negative media coverage. Harmful news damages firm reputation, increasing operational risk. We predict managers to respond to this increased risk by buffering precautionary cash savings, lowering financial leverage, and substituting long for short term debt. Results show that an increase in negative press coverage increases cash holdings in the subsequent quarter by 4.12%, or $65 million on average. We find larger cash increases for firms with higher interdependencies of investment opportunities with rival firms and for financially constrained firms, comporting with the notion that such firms experience higher expected utility from increased cash buffers. Further, we find that reputation loss induces firms to substitute long-term for short-term debt, suggesting that firms entering in the eye of a reputation storm prefer betting on the real option to refinance at future lower long-term rates. Our study contributes to corporate finance literature by providing novel insights on how corporate financial management responds to increased reputation concerns.