A Rose.com by Any Other Name

Abstract

We document a striking positive stock price reaction to the announcement of corporate name changes to Internet-related dotcom names. This "dotcom" effect produces cumulative abnormal returns on the order of 74 percent for the 10 days surrounding the announcement day. The effect does not appear to be transitory; there is no evidence of a postannouncement negative drift. The announcement day effect is also similar across all firms, regardless of the firm's level of involvement with the Internet. A mere association with the Internet seems enough to provide a firm with a large and permanent value increase.The popular financial press has long argued that corporate name changes result in permanent value creation for firms. Analysts claim that investors prefer certain types of names, and that the value of a company's name should be ref lected in the stock price. However, the academic literature has found little evidence that the announcement of a name change results in a positive stock price reaction for the firm. Karpoff and Rankine~1994! find that companies changing their names earn a statistically insignificant excess return of 0.4 percent over a 2-day window around the announcement date. They also find that corporate name changes do not correspond to changes in the covariances of the firm's stock returns with other firms' returns in the same industry nor do they correspond to changes in earnings. Bosch and Hirscheỹ 1989! report that firms announcing name changes earn a statistically insignificant excess return of 1.62 percent in a 21-day period around the announcement date. They find a positive preannouncement effect followed by a negative postannouncement drift, which largely cancels the announcement effect.We investigate the valuation effects of one particular form of corporate name change-those of companies who add ".com" to their names. A number of popular press articles have reported extremely large returns earned

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