Ownership, governance, and the brand-capital firm

We study the effect of ownership and governance on what is arguably a firm’s most valuable asset: its reputation. We model a “brand-capital”, a firm whose sole asset is its reputation with consumers. We show that, for such firms, professional non-owner-management can protect brand capital provided management compensation and retention policy are set by outsiders. Moreover, if compensation policy is transparent, professional management can sometimes protect brand capital better than owner-management. Separating ownership and management separates owners from incentives to opportunistically harvest reputation capital and provides them with incentives to counter managerial opportunism