["Journal of Management Studies, EarlyView. ", "\nAbstract\nWhile prior studies typically treat firm reputation as a stable, intangible resource reflecting cumulative competence, we extend a socio‐constructionist perspective by shifting the focus to reputation instability – erratic fluctuations in a firm’s reputation over time relative to its industry peers. We argue that reputation instability functions as a distinct and often overlooked market signal by introducing ambiguities that influence investor valuation of a firm in a stock market context. Crucially, the impact of reputation instability is further shaped by contextual cues that anchor investor expectations. A firm’s current reputation and industry dynamism condition how instability may be regarded, either as a warning sign or a potential indication of improvement. Using panel data across four major US industry groups over 21 years, we find evidence consistent with our theoretical framework and identify critical boundary conditions under which reputation instability is penalized or rewarded by the market. By reframing reputation as a dynamic and unstable construct, our study advances theory on reputation signals, offering novel insights into how reputational temporal dynamics – not just established levels – shape firms’ market outcomes.\n"]