Skip to main content
SpringerLink
Log in

Signaling Power of Corporate Name Change: A Case of Indian Firms

  • Original Article
  • Published:
Global Journal of Flexible Systems Management Aims and scope Submit manuscript

Abstract

In India, every year a large number of firms change their name. This raises a question that does name change convey any signal of better future prospects. The paper examines market response to name change announcements for firms listed on Bombay Stock Exchange. The paper also examines the predictive ability of firm-specific characteristics in determining the nature of market response to the name change announcement. The finding reveals positive and significant average abnormal returns around event date. An increase in cumulative average abnormal return few days before the announcement date has also been observed. Such a market reaction before the event day may be attributed to the leakage of information. The paper analyzes firm-level attributes of successful name changers. The results show that market risk and historical profitability are significant predictors of sign of abnormal return on day of the event. Positive relation of firm profitability with high abnormal return on the day of announcement indicates that in India a firm cannot break with past, by means of a name change. The announcement of new name change does not have positive signaling effect. Hence, the managers of loss-making firms should avoid consuming resources for signaling through business name change.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Fig. 1
Fig. 2

Similar content being viewed by others

References

  • Asquith, P., & Mullins, D. W. (1986). Equity issues and offering dilution. Journal of Financial Economics, 15(1), 61–89.

    Article  Google Scholar 

  • Auerbach, A. J., & Hassett, K. A. (2005). The 2003 dividend tax cuts and the value of the firm: An event study (No. w11449). Massachusetts: National Bureau of Economic Research.

  • Binder, J. (1998). The event study methodology since 1969. Review of Quantitative Finance and Accounting, 11(2), 111–137.

    Article  Google Scholar 

  • Bosch, J. C., & Hirschey, M. (1989). The valuation effects of corporate name changes. Financial Management, 18, 64–73.

  • Cooper, M. J., Dimitrov, O., & Rau, P. R. (2001). A rose.com by any other name. Journal of Finance, 56, 2371–2388.

    Article  Google Scholar 

  • Delattre, E. (2002). Business name changes: The French experience. Journal of Small Business Management, 40(4), 360.

    Article  Google Scholar 

  • Fama, E. F. (1970). Efficient capital markets: A review of theory and empirical work. The Journal of Finance, 25(2), 383–417.

    Article  Google Scholar 

  • Fama, E. F., Fisher, L., Jensen, M. C., & Roll, R. (1969). The adjustment of stock prices to new information. International Economic Review, 10(1), 1–21.

    Article  Google Scholar 

  • Horsky, D., & Swyngedouw, P. (1987). Does it pay to change your company’s name? A stock market perspective. Marketing Science, 6(4), 320–335.

    Article  Google Scholar 

  • Josev, T., Chan, H., & Faff, R. (2004). What’s in a name? Evidence on corporate name changes from the Australian capital market. Pacific Accounting Review, 16(1), 57–76.

    Article  Google Scholar 

  • Karim, B. (2011). Corporate name change and shareholder wealth effect: Empirical evidence in the French stock market. Journal of Asset Management, 12(3), 203–213.

    Article  Google Scholar 

  • Karpoff, J. M., & Rankine, G. (1994). In search of a signaling effect: The wealth effects of corporate name changes. Journal of Banking and Finance, 18(6), 1027–1045.

    Article  Google Scholar 

  • Lamoureux, C. G., & Poon, P. (1987). The market reaction to stock splits. Journal of Finance, 42, 1347–1370.

    Article  Google Scholar 

  • Lee, P. M. (2001). What’s in a name.com? The effects of ‘.com’ name changes on stock prices and trading activity. Strategic Management Journal, 22(8), 793–804.

    Article  Google Scholar 

  • Mandelker, G. (1974). Risk and return: The case of merging firms. Journal of Financial Economics, 1(4), 303–335.

    Article  Google Scholar 

  • Mase, B. (2009). The impact of name changes on company value. Managerial Finance, 35(4), 316–324.

    Article  Google Scholar 

  • Payne, J. L., & Thomas, W. B. (2003). The implications of using stock-split adjusted I/B/E/S data in empirical research. The Accounting Review, 78(4), 1049–1067.

    Article  Google Scholar 

  • Sergius Koku, P. (1997). Corporate name change signaling in the services industry. Journal of Services Marketing, 11(6), 392–408.

    Article  Google Scholar 

Download references

Author information

Authors and Affiliations

  1. Rajiv Gandhi Indian Institute of Management Shillong, Mayurbhanj Complex, Nongthymai, Shillong, 793014, India

    Neelam Rani & Aman Asija

Authors
  1. Neelam Rani
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Aman Asija
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Neelam Rani.

Appendix

Appendix

See Tables 5, 6 and 7.

Table 5 t-statistic for event window of −20 to +20 days (name change due to M&A)
Full size table
Table 6 Mean difference test (pure name change versus name change due to M&A)
Full size table
Table 7 Final sample
Full size table

Rights and permissions

Reprints and permissions

About this article

Check for updates. Verify currency and authenticity via CrossMark

Cite this article

Rani, N., Asija, A. Signaling Power of Corporate Name Change: A Case of Indian Firms. Glob J Flex Syst Manag 18, 173–181 (2017). https://doi.org/10.1007/s40171-017-0155-7

Download citation

  • Received:

  • Accepted:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s40171-017-0155-7

Keywords

Search

Navigation