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Managerial Actions in Response to a Market Downturn: Valuation Effects of Name Changes in the Dot.com DeclineAjay KhoranaGeorgia Institute of Technology - Finance Area Michael J. CooperUniversity of Utah - David Eccles School of Business Ajay PatelWake Forest University, Schools of Business Raghavendra RauUniversity of Cambridge; UC Berkeley - Haas School of Business Igor OsobovUniversity of Connecticut April 2004 Purdue University Working Paper Abstract: We investigate stock price reactions to Internet related name changes in a market downturn. In contrast to the Internet boom period, during which there was a surge of dot.com additions, in the bust period, there is a dramatic reduction in the pace of dot.com additions accompanied by a rapid increase in dot.com name deletions. Following the Internet "crash" of mid-2000, investors react positively to name changes for firms that remove dot.com from their name. This dot.com deletion effect produces cumulative abnormal returns on the order of 64 percent for the sixty days surrounding the announcement day. Our results add support to a growing body of literature that documents that investors are potentially influenced by cosmetic effects and that managers rationally time corporate actions to take advantage of these biases.
Number of Pages in PDF File: 28 Keywords: Behavioral Finance, Dotcom bubble, Managerial Timing, Gaming Behavior, Market Efficiency, Anomalies, Name Changes JEL Classification: G12, G14 working papers seriesDate posted: March 28, 2003Suggested CitationContact Information
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