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Received 6 July 2000
Final revision received 21 December 2000
Key words: name changes; dot-com; event study; trading volume; market signalling
This paper uses a market signaling perspective to examine investor reactions to firm announcements of name changes to include '.com.' Firms that change their name as a purely cosmetic technique are contrasted to those that employ other strategic investments. Results show that announcements of '.com' name changes are associated with significant increases in stock prices and trading activity. Furthermore, the magnitude of investor reactions is significantly larger when name changes are accompanied by other strategies. Copyright ?2001 John Wiley & Sons, Ltd.
When William Shakespeare wrote, "A rose by any other name would smell as sweet," he obviously wasn't talking about the Internet industry. More and more in the wired world, Internet companies are turning the Bard's rumination on its head, betting that a new name will make an old company sweeter to investors.
- Nancy Beiles, Dow Jones Newswire,
30 March 1999
A firm's name is infused with meaning and reputation, and identifies the firm to internal and external audiences. Conventionally, researchers have used organizational identity or institutional theory to understand firm names (e.g., Glynn and Abzug, 1998, 1999, Ingram, 1996), focusing largely on naming trends, and internal audiences or, in some cases, customers. The organizational identity literature distinguishes between organizational identity, what organizational members believe to be central, enduring, and distinctive (Albert and Whetten, 1985) and image, the way organizational members believe others see the organization, to gaugehow outsiders are judging them (Dutton and Dukerich, 1991). When there is a discrepancy between the firm's identity and image, managers may take actions to resolve that discrepancy (Gioia, Schultz, and Corley, 2000). A name change is one such action. Firms change their names to change their institutional identity internally and establish themselves as part of a different social group (Tajfel and Turner, 1979). In fact, studies have linked name changes to top management turnover (Glynn and Slepian, 1993) and organization survival (Ingram, 1996). However, little has been done to assess the effectiveness of the name change strategy as a way of changing the way outsiders perceive an organization's image. Examining stock price and trading volume changes is one way to gauge...