Elsevier

Economics Letters

Volume 186, January 2020, 108818
Economics Letters

What’s in a name? A lot if it has “blockchain”

https://doi.org/10.1016/j.econlet.2019.108818Get rights and content

Highlights

  • Cryptocurrency-related name changes lead to large and permanent valuation gains.

  • These results are robust to outliers and the choice of expected returns model.

  • The abnormal returns cannot be explained by industry factors or the tiny firm effect.

  • Name changes unrelated to cryptocurrencies lead to small and transient gains.

Abstract

We find that firms that change their corporate names to include buzzwords related to cryptocurrencies experience large and permanent valuation gains. We document cumulative abnormal returns of 30 percent in 3 days surrounding such name change announcements. These abnormal returns cannot be explained by industry factors and the small firm effect. The results are robust to outliers and to the choice of the expected returns model used to measure abnormal returns. The abnormal returns generated following cryptocurrency-related name changes are larger and more persistent than those generated following non-cryptocurrency-related name changes.

Introduction

The popular financial press has reported several instances where publicly listed firms have tried to exploit investors’ interest in cryptocurrencies by changing their corporate names to include buzzwords related to cryptocurrencies, such as “bitcoin” or “blockchain”. Anecdotal evidence suggests that cryptocurrency-related name changes are often accompanied by spectacular gains in the stock prices of these firms. For instance, the stock price of “Bioptix”, a medical equipment manufacturer, nearly doubled in a week after it announced that it is changing its name to “Riot Blockchain”. This phenomenon is reminiscent of the dotcom bubble when several companies witnessed significant increases in their stock prices after changing their names to include buzzwords related to the internet. Cooper et al. (2002) found that firms that added the term “.com” to their corporate names during this period produced cumulative abnormal returns of 53 percent in a 5-day window surrounding the name change announcement date.

In a recent study, Jain and Jain (2019) measure the valuation effect of including the words “blockchain” or “bitcoin” in corporate names using a set of ten publicly listed firms. They found that these firms earn significant positive abnormal returns that persist for 2 months after the name change announcement. We extend their analysis in several ways. First, there is evidence that corporate name change announcements unrelated to cryptocurrencies are also associated with post-announcement positive abnormal returns (Zhao et al., 2018). We examine whether the abnormal returns following cryptocurrency-related name change announcements are larger and more persistent than those observed after non-cryptocurrency-related name change announcements. Second, in addition to “blockchain” or “bitcoin”, we identify three other keywords that firms have commonly used to signal an association with cryptocurrencies, namely, “crypto”, “coin”, and “chain”. For example, “Global New Energy Industries” was renamed as “Coin Citadel” and “Emerald Medical Applications” was renamed as “Virtual Crypto Technologies”. Overall, we use a sample of 39 firms vis-à-vis a sample of 10 firms used by Jain and Jain (2019). Third, using a cryptocurrency control group (described later), we test whether the abnormal returns can be explained by industry factors or by the tiny firm effect. Fourth, we examine whether the abnormal returns are explained through conventional asset pricing factors by using alternative specifications of the expected returns models.

Section snippets

Data and methodology

The sample period for the study is from January 1, 2008 to May 31, 2018. We examine all publicly listed international firms in the Thompson Reuters Datastream database and identify 52 firms that have changed their corporate name during the sample period to include one or more of the following words in their corporate name: “bitcoin”, “blockchain”, “crypto”, “coin” or “chain”. We exclude the firms that have experienced some contaminating event within the event window. The contaminating events

Empirical results

We find that the share price of the sample firms increases significantly following the name change announcement. The average price per share for the sample firms is $2.13 on day 5 and it increases to $3.83 on day +5. The most dramatic price increase occurs in the first couple of days, as the average share price increases from $2.24 on day 1 to $3.26 on day +1. We find no evidence of a post-announcement negative drift in share prices. The average share price is $4.07 on day +10, $4.36 on day +

Conclusion

We find that cryptocurrency-related name changes produce approximately 30 percent cumulative average abnormal returns in the 3 days surrounding the name change announcement. We find no evidence of a post-announcement negative drift, and the valuation gains remain significant 50 days after the announcement. These abnormal returns cannot be explained by industry factors or the tiny firm effect. The results are robust to outliers and to the choice of the expected returns model used to measure

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