Innovation reputation and market capitalization: the moderations of firm size, industry, and asset efficiency

In recent years, companies have achieved market capitalizations exceeding the trillion-dollar mark (Isidore, 2021). However, a perplexing phenomenon persists: some companies, even when outperforming competitors in revenue, fail to achieve comparable market valuations. For instance, in 2021, Ford Motor Company generated more than double Tesla’s revenue, yet its market capitalization stood at $67bn—significantly lower than Tesla’s $1tn valuation (Fortune, 2023). This inconsistency underscores the importance of understanding why certain firms achieve higher valuations, even when traditional performance indicators (e.g. revenue) suggest otherwise. While marketing research has examined determinants of stock market performance (e.g. You et al., 2020), the role of innovation reputation remains underexplored.

Corporate reputation research highlights the impact of overall firm reputation on market capitalization, as positive reputations enhance stock prices (Cole, 2012; Raithel and Schwaiger, 2015). Among the dimensions of reputation, innovation reputation has gained prominence for its influence on performance (Randrianasolo and Semenov, 2024). Innovation reputation is defined as “the aggregate perceptual representation of a company’s activities relating to transforming ideas into new/improved products, services, or processes to successfully compete in their marketplaces, and potential to continue such activities in the future” (Randrianasolo and Semenov, 2024, p. 3). This definition emphasizes that innovation reputation is a facet of reputation rather than a facet of innovation (Randrianasolo and Semenov, 2024), and we adopt this view.

One school of thought in reputation literature holds that corporate reputation is a second-order construct that reflects different facets of reputation (e.g. product/services reputation, workplace reputation, etc.) (Agarwal et al., 2015). This multi-faceted view of corporate reputation indicates that though overall corporate reputation and its different facets may have some relation to innovation reputation, innovation reputation may have a distinct nomological network with its own unique antecedents and outcomes. Underscoring this perspective, Alniacik et al. (2012) found that reputation for a good workplace environment has a stronger influence on employee intentions than the other facets of reputation, while reputation for financial performance has a negative effect. Based on these prior findings, we posit that although prior research has investigated the influence of corporate reputation on market valuations (e.g. Raithel and Schwaiger, 2015), knowledge on how the specific facet of innovation reputation is needed to better understand how firms can leverage this specific facet of reputation to yield better market capitalization. Given today’s business landscape, where innovations play critical roles (Time, 2021), understanding how innovation reputation influences market capitalization is essential. Though research finds its positive effects on variables such as stakeholder attitudes (Morgan et al., 2021) and excitement toward a firm (Henard and Dacin, 2010), the relationship between innovation reputation and market capitalization remains under-investigated in marketing literature. While Randrianasolo and Semenov (2024) find a positive influence of innovation reputation on firm value, further investigations are needed to better understand how firms can leverage innovation reputation for higher market capitalization. Addressing this gap, we pose our first research question:

Beyond this primary relationship, we also seek to investigate the complexities of firm characteristics and abilities that may influence this relationship. Regarding characteristics, research indicates that firm size moderates the impact of strategic variables, including firm innovativeness (Rubera and Kirca, 2012), innovation investments (Sood and Tellis, 2009), and corporate reputation (Lee and Jungbae Roh, 2012). While smaller firms benefit more from innovativeness regarding stock performance (Rubera and Kirca, 2012), larger firms often experience a stronger influence of corporate reputation on firm value (Lee and Jungbae Roh, 2012). However, the interplay between firm size and innovation reputation, particularly concerning market capitalization, remains unexplored. Addressing this gap, we ask our second research question:

Along with firm size, industry context significantly shapes the dynamics of innovation (Ettlie and Rosenthal, 2011) and corporate reputation (Melo and Garrido-Morgado, 2012). Randrianasolo and Semenov (2024) find that industry influences the effect of innovation reputation on performance. Where Randrianasolo and Semenov (2024) find that industry moderates the innovation reputation-performance link, we seek to extend these findings by investigating the influence of industry context on the moderation of firm size in the innovation reputation-market capitalization link. We therefore seek to uncover whether firm size moderates the focal relationship in different industry contexts. Aligning with prior research, which underscores how industry contexts influence firm capabilities, strategies, and resources (Peng et al., 2008; Speed, 1989), we formalize our third research question as:

Finally, along with characteristic variables (firm size and industry), we also seek to uncover how a firm’s ability to efficiently exploit assets, or asset efficiency, influences the focal relationship. Finance research indicates that asset efficiency not only improves productivity, but also yields higher firm valuations (Damodaran, 2014; Higgins et al., 2023). We posit that to effectively leverage innovation reputation to boost market capitalization, firms must have an ability to efficiently exploit this asset. Therefore, our final research question is formalized as:

This current paper makes several theoretical contributions and practical implications. Theoretically, we contribute to the growing body of knowledge on one facet of firm reputation (innovation reputation). Though studies have found its influence on important constructs such as strategic change (Morgan et al., 2021) and customer loyalty (Henard and Dacin, 2010), the literature on this facet of reputation is still in its infancy (Randrianasolo and Semenov, 2024). Thus, we contribute to this research stream. Further, this paper contributes to the discussion on how marketing-related variables can influence stock performance. Since Kumar and Shah’s (2009) impactful work which emphasizes marketers’ pivotal roles in driving market capitalization, the marketing literature on market capitalization has been growing (e.g. Tang et al., 2021), and we contribute to this discussion.

Practically, this paper implies how marketers can leverage their firms' innovation reputation to impact stock market performance by exploring the conditions under which this intangible asset can be employed to yield such gains. As stock market valuations continue to cross the trillion-dollar threshold, firms may seek to employ this important asset to compete on the stock market, and we seek to provide knowledge on this endeavor.

Market capitalization has gained prominence in marketing research over the last 2 decades (e.g. Tang et al., 2021), investigating variables such as customer equity (Schulze et al., 2012) and executive characteristics (You et al., 2020) in their influence on stock market performance. Studies investigating marketing’s influence on stock market performance can be broadly categorized into two areas. The first category, firm strategies and actions, examines actions such as employing artificial intelligence-driven customer service (Fotheringham and Wiles, 2023) and advertising spending (Joshi and Hanssens, 2010), which firms undertake to improve stock market outcomes. The second category, firm assets, characteristics, and capabilities, explores how characteristics like executive traits (You et al., 2020), capabilities such as innovativeness (Rubera and Kirca, 2012), and assets like customer equity (Kumar and Shah, 2009) affect stock market performance.

Further, research finds a link between investors and firm innovations. Some research associates investor characteristics and firm innovations (e.g. Boh and Huang, 2020), and others found that innovations influence investors’ perceptions and affective trust (e.g. Sorescu and Schreier, 2021), indicating that investor perceptions may influence stock market performance. Since innovation reputation relies on such perceptions, it can be stated that it may influence market capitalization.

Despite these contributions, limited marketing studies investigate how innovation reputation—a key facet of corporate reputation—affects market capitalization. This gap likely stems from the nascent state of the innovation reputation literature (Randrianasolo and Semenov, 2024). By addressing this gap, we aim to enrich this emerging field with a better understanding of innovation reputation and market valuations.

While research in other disciplines, such as economics, has explored the relationship between overall corporate reputation and market capitalization (e.g. Cole, 2012), innovation reputation warrants specific attention in marketing due to its distinct implications for consumer behavior. Marketing scholars have shown that innovation reputation enhances customer perceptions, satisfaction, and purchase intentions (Gleim et al., 2015). Furthermore, it fosters excitement (Henard and Dacin, 2010) and engagement (Höflinger et al., 2018). These effects suggest that firms with strong innovation reputations could benefit from enhanced stock market performance. Therefore, this study investigates whether the consumer-facing advantages of innovation reputation translate into higher market capitalizations. In other words, since innovation reputation has positive effects on consumers (Henard and Dacin, 2010), does it ultimately boost stock market performance?

Marketing research has long emphasized the importance of corporate reputation (Zervas et al., 2021) and innovativeness (Finoti et al., 2017) for firm performance. More recently, innovation reputation has garnered attention as a unique construct with implications for competitive success (e.g. Morgan et al., 2021). Unlike firm innovativeness, which involves internal activities aimed at developing new products and processes (Hyvärinen, 1990), innovation reputation concerns stakeholder perceptions of a firm’s innovativeness. This distinction is critical because innovation reputation is conceptualized as part of reputation management—focusing on how firms build intangible assets in their external environment—rather than internal innovation strategies. Thus, the contributions of this paper align with discussions on the value of reputation in firm valuations, as opposed to performance enhancement through innovation strategies. Understanding innovation reputation as a reputational resource, the subsequent section employs the resource-based view (RBV) to explore its influence on market capitalization.

Prior research suggests that innovation reputation is an intangible asset that firms may leverage for competitive advantages to boost performance (Höflinger et al., 2018; Morgan et al., 2021). As an intangible asset, firm reputations are second order resources that reduce asymmetric information and allow firms to better attract first order resources (Fernandez-Gamez et al., 2016). Reputation is the aggregate perception of key stakeholders that can be used to unlock other important resources. With this utility, firm-level reputations, and the resources it attracts boost a firm’s competitiveness and performance (Fernandez-Gamez et al., 2016). From this view, we posit that innovation reputation has such utility to influence market capitalization.

Innovation reputation not only encompasses stakeholder perceptions of a firm’s prior record of innovations, but also perceptions of potential future innovations (Randrianasolo and Semenov, 2024). Since such perceptions positively influence stakeholder beliefs about firms’ future competitiveness (Raithel and Schwaiger, 2015), we posit that such perceptions positively influence market value. Supporting this notion, prior research finds that stakeholder perceptions affect market value (e.g. Bardos et al., 2020). Therefore, we hypothesize:

Marketing research has emphasized the importance of firm size in performance (De Brentani, 1995). Interestingly, research states that the relationship between innovativeness and firm value is stronger for smaller firms (Rubera and Kirca, 2012), and that total stock returns of innovative projects are higher for smaller rather than larger firms (Sood and Tellis, 2009). These findings indicate that innovativeness is more critical for smaller firms to signal to investors that they have growth capabilities; small firms have higher salience for individual events (i.e. innovative projects); and larger firms are more likely to be subject to cannibalization since innovations may lead to increasing cash flows from the new products by reducing cash flows from existing products (Rubera and Kirca, 2012). These investigations, however, are for actual innovations rather than innovation reputation. We adopt a resource-based view (RBV) to propose that the influence of innovation reputation on market capitalization is positively moderated by firm size.

RBV proposes that firms gain competitive advantages and boost performance by appropriately configuring tangible and intangible assets (Baquero, 2024; Osakwe and Anaza, 2018; Wernerfelt, 1984). As an intangible asset, innovation reputation must be configured with other assets and capabilities to develop competitive advantages. This aligns with the RBV perspective that competitive advantages are developed from the bundling and configurations of assets and capabilities (Barney, 1991). Research finds that larger firms are likely to have more assets that lead to more competitive advantages (Elsayed, 2006). Further, larger firms are better able to conduct more experiments that facilitate knowledge development (Macher, 2006). Larger firms are thus better able to configure innovation reputation with other assets to develop competitive advantages and yield superior performance. We thus hypothesize:

Service vs Manufacturing Industries. Research highlights the significance of industry context in innovation studies, emphasizing how industry-specific dynamics shape the relationship between innovation and firm performance. For instance, Ettlie and Rosenthal (2011) reveal that innovation novelty is more closely linked to performance in service industries compared to manufacturing. Similarly, Padgett and Galan (2010) demonstrate that R&D intensity, an indicator of innovation, is more prevalent in manufacturing industries. Further, Randrianasolo and Semenov (2022) illustrate how national philanthropic environments differentially influence the relationship between R&D intensity and corporate social responsibility across service and manufacturing sectors.

The role of industry also extends to reputation studies, where industry context moderates both antecedents and outcomes of firm reputation. Brammer and Pavelin (2006) find that the influence of reputation on social performance varies by industry sector, while Barnett and Hoffman (2008) suggest that firm reputations often intersect with broader industry reputations. Additionally, Melo and Garrido-Morgado (2012) observe that the impact of social responsibility on reputation is contingent on the firm’s industry. Reflecting these insights, we adopt an industry-based view to explore whether the moderating role of firm size in the relationship between innovation reputation and market capitalization depends on whether firms operate in service or manufacturing industries.

The industry-based view posits that industry structural conditions shape firm actions, strategies, and ultimately performance (Peng et al., 2008; Porter, 1980; Simkin, 1997). Service firms, compared to their manufacturing counterparts, tend to rely more on intangible assets like reputation for competitive advantages, as reputation plays a pivotal role in markets where service quality becomes apparent over time (Smith et al., 2013). Reputation in service firms serves as both a signal of service quality and a strategic resource for influencing stakeholder perceptions (Walsh and Beatty, 2007). Thus, we propose that service firms require a more robust configuration of strategic assets, including innovation reputation, to impact market capitalization. Consequently, the effect of firm size on the innovation reputation and market capitalization relationship is expected to differ between service and manufacturing industries.

Low Innovation vs High Innovation Industries. Building on the hypothesized differences in firm size moderation between service and manufacturing industries, we also propose that industry innovation levels further influence this moderation. Employing RBV and an industry-based perspective, we argue that the extent of innovation within an industry affects how firm size moderates the relationship between innovation reputation and market capitalization. Recent research (e.g. Randrianasolo and Semenov, 2024) highlights that the level of innovation within industries can shape the impact of innovation reputation on firm performance. Extending this work, we hypothesize that industry innovation levels also influence the dynamics of firm size as a moderating factor.

According to RBV, for resources to drive competitive advantages and enhance performance, they must meet the criteria of being valuable, rare, inimitable, and organized (VRIO). In high-innovation industries, such as the information technology sector, innovation is often a baseline requirement for survival (Randrianasolo and Semenov, 2024). Consequently, being perceived as innovative is common rather than rare, reducing the unique value of innovation reputation in these contexts. In such industries, the advantage of larger firms with abundant assets and capabilities to leverage innovation reputation into competitive advantages is minimal, as innovation reputation lacks the rarity needed for VRIO-based differentiation.

Conversely, in low-innovation industries, innovation is not as central to survival, and therefore, firms with strong innovation reputations may stand out more significantly. Innovation reputation, which includes stakeholder perceptions of a firm’s potential for future innovations, may function as a rare and valuable differentiator in these contexts. In such industries, larger firms with greater assets and capabilities may be better equipped to leverage innovation reputation into competitive advantages. Thus, the benefits of firm size in amplifying the impact of innovation reputation on market capitalization are expected to be greater in low-innovation industries. We thus hypothesize:

It is important to note that the proposed model focuses on innovation reputation, which is conceptualized as a component of reputation management, rather than innovation management, therefore we do not hypothesize the influence of firm innovativeness. This current paper primarily seeks to contribute to the reputation and valuations discussion in the marketing-finance interface rather than the innovation literature. Though the concepts of innovation reputation and innovativeness may be related, they are distinct, and we seek to provide insight into how this facet of firm reputation influences firm valuations. However, we do include R&D intensity, a proxy for firm innovativeness, as a control variable in our methods since R&D intensity indicates a firm’s focus on innovations (Randrianasolo and Semenov, 2022). Figure 1 illustrates the conceptual model. The subsequent sections present two studies designed to empirically test these hypotheses.

We hypothesize that larger firms, with greater asset availability, are better positioned to configure innovation reputation with complementary resources to develop competitive advantages, particularly in service firms and low-innovation industries. However, firm size and industry are firm characteristics that might offer limited insight into how firms effectively convert resources into advantages. To address this gap, we introduce asset efficiency (operationalized as return on assets, ROA), which reflects a firm’s ability to generate income from its assets (Damodaran, 2014; Higgins et al., 2023). Firms with higher ROA exhibit greater operating efficiency, reflecting superior productivity and asset utilization.

Finance research demonstrates ROA’s direct influence on firm value (Husna and Satria, 2019). Extending this logic, we propose that ROA also moderates the innovation reputation–market capitalization relationship. RBV emphasizes that resources must not only be valuable, rare, and inimitable but also effectively organized to yield competitive advantages (Barney and Hesterly, 2019). Specifically, firms require organizational capabilities to exploit resources’ full potential (Kozlenkova et al., 2014). Asset efficiency (ROA) serves as a proxy for such capabilities, as firms with higher ROA are better equipped to translate innovation reputation into market value. Thus, we hypothesize:

As theorized in H4, innovation reputation is a baseline requirement in high-innovation industries, where perceptions of innovativeness are commonplace. In contrast, innovation reputation is a rare differentiator in low-innovation industries. Building on this logic, we propose that asset efficiency’s moderating role in the innovation reputation–market capitalization link is contingent on industry innovation levels.

In low-innovation industries, innovation reputation is scarce, granting firms with high ROA (i.e. superior asset efficiency) a unique advantage to leverage this reputational resource. These firms can convert innovation reputation into market value more effectively than peers in high-innovation industries, where innovation reputation’s ubiquity diminishes its rarity (Barney, 1991; Randrianasolo and Semenov, 2024). Thus, we hypothesize:

To test H1, H2, and H3, we utilized data from multiple sources. Fortune.com’s 2023 rankings of the 300 most innovative companies in America provided a measure of firm innovation reputation, while the Fortune 500 list offered financial and operational data for the 500 largest US companies based on revenue (Fortune, 2023). Financial metrics, including market capitalization, number of employees, net income, ROA, firm age, R&D expenditures, advertising expenditures, current ratio, leverage, and industry classification (4-digit SIC code), were retrieved from Bloomberg for the years 2020–2022. Our final sample comprised 500 Fortune 500 firms, of which 127 were identified as innovative based on the Fortune 300 rankings. Additionally, 192 firms were classified as manufacturing, and 308 as service firms.

Given potential lags in variable effects on firm value and issues related to simultaneity bias and autocorrelation (Ali Shah and Akbar, 2008), we calculated a three-year average for all variables (2020–2022). Innovation reputation was the sole exception, as the Fortune 300 list debuted in 2023.

Dependent variable. Market capitalization was operationalized as the natural logarithm of the market capitalization reported in the Fortune 500 list.

Independent variables. Innovation reputation was captured as a binary variable based on whether a Fortune 500 firm appeared in the Fortune 300 list of innovative companies (coded 1 for inclusion, 0 otherwise). The Fortune 300 rankings were derived from surveys of diverse stakeholders, which measured their perceptions on each company’s level of product, process, and cultural innovations, aligning with the conceptualization of innovation reputation (Randrianasolo and Semenov, 2024). Firm size was measured as the natural logarithm of the number of employees, and firms were categorized as manufacturing or service firms based on their SIC codes.

Control variables. Following prior research, we controlled for ROA (net income/total assets), firm age (logarithm of years), R&D intensity (R&D expenditures/total sales), advertising intensity (advertising expenditures/total sales), current ratio (current assets/current liabilities), leverage (total debt/total equity), and industry classification (for H1 and H2; Hermawan et al., 2020; Joshi and Hanssens, 2004; Widiatmoko et al., 2020). Table 1 provides descriptive statistics and correlations for all variables. (See  Appendix for the variable definitions and measures)

Ordinary least squares (OLS) regression with 5,000 bootstraps tested H1 and H2 in the total sample (n = 500).

Model 1 included control variables, all of which significantly predicted market capitalization. In Model 2, adding innovation reputation and firm size showed both variables positively influenced market capitalization (β = 0.17, p < 0.001; β = 0.23, p < 0.001), supporting H1. Model 3 introduced the interaction term, which significantly predicted market capitalization (β = 0.14, p < 0.001), supporting H2. Table 2 displays the results, and Figure 2 illustrates the firm size moderation.

To test H3, separate OLS regressions analyzed the manufacturing and service industry subsamples. In the manufacturing subsample, innovation reputation (β = 0.28, p < 0.001) and firm size (β = 0.19, p < 0.01) predicted market capitalization, but their interaction was insignificant (β = 0.14, p > 0.05). For service firms, innovation reputation (β = 0.12, p < 0.05), firm size (β = 0.26, p < 0.001), and the interaction (β = 0.14, p < 0.01) significantly predicted market capitalization, supporting H3. Results are presented in Tables 3 and 4, and Figure 3 illustrates the moderation effect.

Robustness tests using 2022 data alone confirmed the findings, which are reported for the 2020–2022 period.

To test H4, H5, and H6, secondary data was collected from multiple sources. The Forbes list of the 100 most innovative companies, based on the innovation premium score, was used as a proxy for innovation reputation (Forbes, 2024). Forbes’ innovation premium score measures investor perceptions regarding expectations for future innovative results based on perceptions of past performance (Forbes, 2024). This score reflects both perceptions of past performance and anticipated future growth, aligning with the conceptualization of innovation reputation (Randrianasolo and Semenov, 2024). Unlike the binary measure of innovation reputation in Study 1, the innovation premium score provides a continuous variable, offering a more nuanced representation. Additionally, while Study 1 focused solely on US firms, the Forbes list includes firms from 18 countries (Australia, Belgium, Brazil, China, Finland, France, Germany, India, Israel, Japan, Luxembourg, Morocco, Netherlands, Sweden, Switzerland, Taiwan, the UK, and the US), enhancing the generalizability of the findings. For each firm, the Bloomberg database provided data on market capitalization, firm size (log-transformed number of employees), industry sector, and classification (manufacturing vs service) for 2021–2023.

To test H4 and H6, the sample was split into high innovation industries (n = 40) and low innovation industries (n = 60). Based on Wartzman and Tang’s (2021) report, firms in information technology and consumer staples sectors were classified as high innovation, while other sectors (e.g. financials, healthcare, and industrials) were categorized as low innovation industries. To test H5, we utilized the entire Forbes list of the 100 most innovative companies.

To test H4 (firm size), separate OLS regression analyses were conducted for high and low innovation industries with market capitalization as the dependent variable.

In high innovation industries, Model 1(a) included innovation reputation and firm size. While firm size significantly predicted market capitalization (β = 0.39, p < 0.05), innovation reputation was not a significant predictor. Model 2(a) added the interaction of innovation reputation and firm size, which was also non-significant. However, firm size remained a significant predictor (β = 0.41, p < 0.05). It is important to note here that although Study 1 found that the firm size interaction is dependent on the service vs manufacturing classification, we did not include this classification as a control variable since all firms in this sample (high innovation) were service firms. We did however include this control in the low innovation sample, as discussed below.

In low innovation industries, Model 1(b) controlled for industry classification (manufacturing vs service) and found that it significantly predicted market capitalization (β = −0.33, p < 0.05). In Model 2(b), innovation reputation (β = 0.41, p < 0.001) and firm size (β = 0.35, p < 0.01) were significant predictors, while the industry dummy variable became non-significant. In Model 3(b), the interaction of innovation reputation and firm size (β = 0.55, p < 0.001) was significant, as was innovation reputation (β = 0.21, p < 0.05), while firm size and industry dummy were not. These results support for H4.

Table 5 presents the regression results for high/low innovation industries. Figure 4 illustrates the moderation effect.

To test H5, an OLS regression analysis was performed on Sample 2, using market capitalization as the dependent variable. Model 1 included control variables from Study 1, excluding ROA. In Model 2, innovation reputation (β = 0.03, p > 0.05) was not significant, while asset efficiency (β = 0.42, p < 0.001) showed a strong effect. Model 3 revealed a significant interaction between innovation reputation and asset efficiency (β = 0.26, p < 0.001), with asset efficiency remaining significant (β = 0.36, p < 0.001), while innovation reputation alone was not. These findings support H5. Table 6 presents the regression results, and Figure 5 illustrates the moderation effect.

To test H6, separate OLS regressions were conducted for high and low innovation industries, using market capitalization as the dependent variable.

In high/low innovation industries, Model 1(a)/(b) included innovation reputation and ROA. ROA significantly predicted market capitalization in both industry types (β = 0.53, p < 0.001/β = 0.24, p < 0.05), while innovation reputation was significant only in low innovation industries (β = 0.45, p < 0.001). Model 2(a)/(b) introduced the interaction between innovation reputation and asset efficiency. While this interaction was not significant in high innovation industries (β = 0.24, p > 0.05), it was significant in low innovation industries (β = 0.24, p < 0.05). These findings support H6. Table 7 presents these results and Figure 6 illustrates the moderation effect.

This paper demonstrates that innovation reputation significantly influences market capitalization, highlighting its role as a strategic intangible asset. The impact of innovation reputation is amplified in larger firms, emphasizing the importance of firm size in leveraging this asset. The moderating effect of firm size is contingent on industry context. Specifically, the effect is significant for service rather than manufacturing firms, underlining the reliance of service firms on reputation as a competitive differentiator. Additionally, the firm size moderation is more pronounced in industries characterized by lower levels of innovation, suggesting that innovation reputation’s strategic value may vary depending on the broader industry dynamics. Finally, the results indicate that along with firm size, asset efficiency also enhances the effect of innovation reputation on market capitalization, and this moderation is stronger for firms in low rather than high innovation industries. These findings advance theoretical understandings and practical implications, as discussed below.

This research makes several contributions to literature. First, we extend knowledge on innovation reputation as a critical facet of corporate reputation and its role in market capitalization. Reputation management remains an essential function for marketers striving to compete in stock markets (Blajer-Gołębiewska and Nowak, 2024). By demonstrating the utility of innovation reputation as an intangible asset that influences investor perceptions, we highlight its strategic significance in driving market capitalization. Our results indicate that innovation reputation enhances firms’ market valuations through its ability to shape stakeholder expectations, particularly in industries where reputational assets are key to competitive differentiation. This insight underscores the need for marketers to strategically manage perceptions of innovation, particularly in the current era of heightened competition and technological advancements.

Second, we contribute to literature by demonstrating how firm size moderates the focal relationship. While prior research finds that smaller firms derive greater stock returns from innovativeness (Rubera and Kirca, 2012), our findings reveal the opposite for innovation reputation. Larger firms, equipped with more assets to configure, are better positioned to leverage innovation reputation in generating competitive advantages. This distinction not only emphasizes the strategic importance of firm size in the configuration of resources but also calls for further exploration into how different facets of corporate reputation yield value across firm contexts.

Third, we provide insights by contextualizing the relationship between innovation reputation and market capitalization within industry contexts. The contingent nature of firm size’s moderation effect, particularly its amplification in service industries, highlights the importance of industry-based views. Service firms, with their reliance on reputation as a competitive asset (Smith et al., 2013), derive more value from innovation reputation than manufacturing firms, where product quality often takes precedence (Kroll et al., 1999). We further uncover that in service industries, innovation reputation interacts synergistically with firm size to boost market valuations, emphasizing the unique role of reputational assets in these industries. Conversely, for manufacturing firms, firm size alone significantly influences market capitalization, whereas innovation reputation does not, suggesting that larger manufacturing firms create competitive advantages through other resources and strategies.

Further, our results reveal that industry innovation levels also significantly influence the dynamics of these relationships. Specifically, in low innovation industries, innovation reputation significantly enhances market capitalization, particularly when coupled with larger firm size. The interaction of innovation reputation and firm size has a stronger effect on market capitalization in low innovation industries compared to high innovation industries. In contrast, in high innovation industries, innovation reputation does not significantly impact market capitalization, as these industries often require baseline innovation capabilities, making innovation reputation less rare and valuable for differentiation. These insights provide evidence that resource configurations differ substantially across industries, emphasizing the need for multi-theoretical approaches to understand the contextual applications of resources like innovation reputation.

Lastly, we contribute to literature by finding the importance of asset efficiency in leveraging innovation reputation to boost market capitalization. This finding indicates that it is not only the availability of resources, indicated by firm size, that is important to employing innovation reputation, but also the firm’s ability to efficiently organize and configure assets effectively to yield positive performance results.

This study offers essential insights for Chief Marketing Officers (CMOs) and strategic marketing managers on leveraging innovation reputation to enhance market capitalization, particularly by aligning marketing efforts with financial metrics. These findings are timely, given challenges like declining CMO tenure (averaging just 40 months among the top 100 US brands) and persistent misalignment with CEOs over return on investment (ROI) expectations (Graham, 2022).

A key takeaway is the strategic value of innovation reputation in connecting marketing outcomes to financial performance metrics like market capitalization. While CMOs traditionally focus on brand equity and customer loyalty, CEOs prioritize shareholder value. The evidence from this study underscores the potential for CMOs to address the skepticism of CEOs who often view marketing as lacking demonstrable financial returns (Kumar and Shah, 2009). By positioning innovation reputation as a tool that directly impacts market capitalization, marketing leaders can bridge this gap, demonstrating marketing’s financial contributions. This alignment can also foster improved collaboration between marketing and finance functions, as emphasized in prior research (Sidhu and Roberts, 2008).

The study also highlights the need for industry-specific strategies. In low-innovation industries, where innovation is a less critical competitive factor, innovation reputation can serve as a differentiator, enabling firms to attract investors and customers. Managers in such industries should leverage innovation reputation to position their firms distinctively. Larger firms, with greater resources, can amplify the impact of innovation reputation through targeted reputation-building campaigns, making it a valuable strategic asset in these contexts. Conversely, in high-innovation industries, where innovation is expected, the relative advantage of innovation reputation diminishes. Managers in these industries may find greater success by focusing on other differentiators, such as product quality, customer experience, or brand equity.

Firm size also emerges as a critical factor in leveraging innovation reputation. Smaller firms can use innovation reputation to signal growth potential, while larger firms, particularly in low-innovation industries, can integrate innovation reputation with other capabilities to build competitive advantages. In high-innovation industries, however, the benefits of firm size in leveraging innovation reputation are less pronounced, necessitating alternative strategies.

For service firms, where reputation is integral to service quality and customer trust (Walsh and Beatty, 2007), managers should focus on integrating innovation reputation with other reputation facets to present a cohesive narrative. Manufacturing firms, on the other hand, may benefit more from emphasizing other reputation aspects (e.g. Sustainability reputation), to align with industry-specific expectations (Leonidou et al., 2013).

The findings also provide societal implications. Firms with a higher innovation reputation are shown here to yield larger market capitalizations, indicating that firms perceived to be more innovative yield higher legitimacy from stakeholders. This provides implications for both firms and public initiatives seeking to manage public attitudes toward innovation. This may be of particular importance to government programs seeking support for innovation-driven public goods or to shape public policy around innovation-driven economic development. An understanding of innovation reputation may yield better success in the diffusion of new innovations for both the public and private sectors.

Finally, this paper implies that smaller firms or firms in high innovation industries or manufacturing industries may still employ innovation reputation to yield better market capitalizations by increasing asset efficiency. If firm size or industry contexts aren’t favorable for this endeavor, firms should focus more on the efficient use of assets to yield the intended results from innovation reputation.

This study acknowledges several limitations that pave the way for future research. First, Study 1 focused on US firms, while Study 2 included a global sample of high-revenue companies, potentially limiting insights into firms in emerging markets or smaller economic contexts. Future research should thus examine firms in diverse environments. Second, while Study 2 included firms of varying sizes, Study 1 centered on the largest US firms by revenue, potentially overlooking innovation dynamics in smaller firms or startups. Future work should investigate smaller firms. Finally, this study did not consider factors such as macroeconomic conditions or regulatory environments. We encourage future studies to investigate such dynamics.

This study provides a nuanced understanding of how innovation reputation, firm size, industry, and asset efficiency collectively shape market capitalization. We emphasize the importance of resource configurations in leveraging innovation reputation as a strategic asset. This research contributes to knowledge on one facet of corporate reputation, and we encourage future work to further uncover how firms can manage innovation reputation to yield positive results.

The authors would like to express their sincere gratitude to the editors and anonymous reviewers for their valuable feedback and suggestions, which greatly improved this manuscript.