Study Shows a Reality-Perception Gap Can Cost

Thom Weidlich 05.16.24


A recent study concludes that the financial performance of publicly traded companies is more correlated with the organizations’ actual behavior than with how they are perceived in terms of reputation — though the issues can get murky.

The study (“Do Actions Speak Louder Than Words?”) is from the Institute for Public Relations, the nonprofit that sponsors PR research, and MAHA Global, which offers a “reputation intelligence” platform.

“Corporate reputation was found to be influenced by how companies are behaving rather than factors such as perception, historical behavior of the organization, message efficacy, brand equity, media coverage, etc.,” the study says. “These factors, though, are important when building and maintaining corporate reputation, but must be tied to behavior.”

The study concludes that the highest financial returns for these companies come from “the combination of better behavior and effective communication about those behaviors.” In other words, you gotta walk the walk, not only talk the talk.

Available Information

“In a world where so much information is available to the public, companies can no longer make commitments without follow-through,” Ryan Calsbeek, Dartmouth professor of biological sciences, head of science at MAHA and the study’s author, said in a press release.

Interestingly, the study says that a perception-reality gap can signal one of two things to a company. If the perception is lower than the reality, the company needs to work harder to communicate its good acts. On the other hand, if perceptions are higher than behavior, that could be a bad omen, a warning that new information could emerge that tanks that reputation. It’s a signal to plan for a crisis.

In a world where so much information is available to the public, companies can no longer make commitments without follow-through.

— Ryan Calsbeek

The study calls organizations that score lower on perception but higher on behavior “misunderstood companies.” In the study, this was especially so for biotech/pharma companies, which were “misunderstood” on nine of 17 attributes, including diversity, employee compensation and supply chain. An example given was serving communities with limited access to healthcare: Perception in this area was negative while the actual behavior put the industry in the top quartile of all industries.

Methodology Explanation

This is the type of study that calls for a little explanation of methodology. The researchers collected data on public perception and behavior concerning 511 publicly traded companies in 16 industries in seven areas: environmental impact, community impact, governance, treatment of employees (pay, basically), commitment to diversity, customer satisfaction and financial performance.

Perception data came from news outlets and social media (the usual suspects: X, Facebook, TikTok, etc.), including articles, blogs, TV, newswires and podcasts in 100 languages, with sentiment scored (negative, neutral, positive).

Behavior data came from public disclosures, such as regulatory filings on such things as employee salaries, CO2 emissions, minority hires in management and philanthropic donations. Financial performance was based on market cap and sales.

Image Credit: Shutterstock/ra2 studio

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