The impact of name changes on company value

Abstract

PurposeThe purpose of this paper is to examine the effect of name changes on the value of UK companies. Previous research in the USA suggests that there is little effect associated with a name change, except for a small sample of Dot Com companies.Design/methodology/approachThis study uses an event study methodology to measure the short‐term abnormal returns associated with the announcement of company name changes. It uses a calendar time methodology to measure the corresponding long‐term abnormal returns. It distinguishes between amendments and radical name changes, as well as those that signal that a firm is diversifying or re‐focusing.FindingsContrary to the existing research, there is evidence of consistent abnormal returns following name change announcements, particularly when a distinction is made between amendments and radical name changes, and whether the name change reflects a company that is diversifying or re‐focusing.Research limitations/implicationsThis research suggests that companies should reflect on the nature of a proposed name change. Company name changes that drop part of an existing name are not well received by shareholders, whereas those that add to the existing name are. In addition, adding or dropping the term “group” from a company's name can also have considerable effects on the share price, both in the short and long run.Practical implicationsThis paper shows that shareholders' perceptions of the implications of a company's name change are important. Name change announcements should therefore be regarded as influential signals to investors.Originality/valueThis paper finds significant abnormal returns associated with company name change announcements. Further, it shows that the type of name change is important in determining the sign of these resulting abnormal returns.

The impact of name change on the financial performance of savings and credit co-operatives in Kenya

“…Josev et al (2004) establish a negative association between name change and abnormal returns especially for Australian listed companies with "major" name change. Mase (2009) provides evidence of consistent abnormal returns following the announcement of name…”

“…In most cases, organizations aim to create a new image through name change (Bosch and Hirschey, 1989). Mase (2009) observes that the impact of name change on firm value has been relatively modest. An earlier study by Howe (1982) did not find significant valuation influence on name change.…”

“…A number of prior studies typically examine stock market reaction to name change. For instance, Mase (2009) establishes a negative impact of name change on abnormal returns around the announcement date. Andrikopoulos et al (2007) establish a negative impact of name change on the long-term abnormal returns for UK companies.…”

“…Because of rebranding, the SACCOs have expanded their branch network and enabled a national appeal, as they pursue growth strategies nationally (Mugwe, 2012). Mase (2009) posits that name change by an organization is an important part of its identity and coveys a signal to its employees, customers and shareholders. According to Josev et al (2004), organizations may engage in various actions or behaviours that have signalling motivation.…”

The Impact of Insurer Name Changes on The Demand for Insurance

“…In considering the impact of name changes on the firm, the prior literature often has focused on market responses to the announcement of corporate name changes. The results from these studies have been mixed, with some studies finding evidence of a positive market reaction to the announcement of a name change (e.g., Horsky and Swyngedouw, ; Bosch and Hirschey, ; Cooper, Dimitrov, and Rau, ; Wu, ) while others suggest that a name change is either a negative event (Mase, ) or is viewed as a nonevent by financial markets (e.g., Howe, ; Karpoff and Rankine, ).…”