Managerial Actions in Response to a Market Downturn: Valuation Effects of Name Changes in the Dot.com Decline
Georgia Institute of Technology - Finance Area
Michael J. Cooper
University of Utah - David Eccles School of Business
Wake Forest University, Schools of Business
University of Cambridge; UC Berkeley - Haas School of Business
University of Connecticut
Purdue University Working Paper
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, G14working papers series
Date posted: March 28, 2003
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