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Prior Financial Performance As A Predictor Of Perceived Organizational Reputation: An Empirical Examination Among Local Authorities In Israel

Author: ABRAHAM CARMELI
Published in PFM, Vol. 1 No. 4

This study explores the relationship between prior financial
performance and perceived organizational reputation of local authorities
in Israel. In the business sector, studies have indicated that prior
financial performance, such as ROA, is found to be a good predictor of
corporate reputation (McGuire, Sundgren and Schneeweiss, 1988;
Hammond and Slocum, Jr., 1996). The local government in Israel has
been experiencing an ongoing financial crisis. However, while some local
authorities have inferior financial performance, others have managed to
attain a superior financial position. Unfortunately, the established
argument that the influence of past financial performance yields the core
nature of the reputation construct has not been tested in the public
sector, particularly among local authorities.
The results of testing this construct among 112 Israeli local
authorities (42.6% of the target population) for 1997 and 1998 showed
that only two financial measures remained in the equation for each year.
In 1997, the financial measures were the collecting efficiency ratio and
the income-to-expenses ratio in the regular budget. These two measures
explained 11.6 percent of a local authority’s perceived organizational
reputation in the year 2000. In 1998, the financial measures were the
collecting efficiency ratio and the per-resident surplus (deficit) ratio.
These measures explained 15.5 percent of a local authority’s perceived
organizational reputation in 2000. The results may lead local
authorities to acknowledge the importance of being in a superior
financial position in order to have a favorable organizational reputation.

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