IN SEARCH OF A SIGNALING EFFECT - THE WEALTH EFFECTS OF CORPORATE NAME CHANGES

We find that evidence of a positive stock price reaction to the announcement of a name change is very weak and is sensitive to sample selection. We interpret the evidence as a caution against the popular opinion that corporate name changes have significant valuation effects. We also find little evidence that corporate name changes correspond to changes in a firm's stock return covariability with its industry index or changes in the firm's earnings growth rate. These results cast doubt on two purported motives for name changes: that they convey information to the market about changes in the firm's line of business or that they signal management's private information about the firm's future performance. Corporate name changes may serve useful purposes, but such purposes have small valuation effects or tend to be anticipated by investors.