Fresh look or false advertising: Modeling of investor attention based on corporate name changes

• Published in: Finance research letters Vol. 47; p. 102526
• Main Authors: Feng, Qingchen, Tao, Qizhi, Sun, Yicheng, Susai, Masayuki
• Format: Journal Article
• Language: English
• Published: Elsevier Inc 01.06.2022
• Subjects: Corporate name change; G14; G34; Investor mania hypothesis; Rational pricing hypothesis; Rational pricing hypothesis; G34; G14; Investor mania hypothesis; Corporate name change
• ISSN: 1544-6123; 1544-6131
• DOI: 10.1016/j.frl.2021.102526

•Market and investors react positively to renaming during the announcement period.•Renaming has a significantly negative effect on companies’ long-term stock returns.•The dynamic change in responses to renaming become more rational over time.•Some factors have an impact on the decision to carry out renaming.•We offer new and more detailed evidence to support the rational pricing hypothesis. Using the renaming of companies in the Chinese market, where managers are more likely to take advantage of cosmetic effects in an attempt to influence investors, we find that, during the announcement period, the stock price and trading activities both react positively to renaming, especially when it is for image improvement reasons. However, in the long run, renaming has negative BHARs (buy and hold abnormal returns). Over time, the market and investors overreact less to renaming. Companies with problematic financial performance and negative media coverage are more inclined to change their name. We offer new and more detailed evidence to support the rational pricing hypothesis, rather than the investor mania hypothesis.