Market Reactions to Corporate Name Changes: Evidence from the Toronto Stock Exchange

International Journal of Managerial Finance 13 (1), 2017, 50-69

Fox School of Business Research Paper No. 18-005

42 Pages Posted: 14 Dec 2017 Last revised: 10 Mar 2020

See all articles by Ernest N. Biktimirov, Ph.D., CFA

Ernest N. Biktimirov, Ph.D., CFA

Brock University, Goodman School of Business

Farooq Durrani

Temple University - Fox School of Business

Date Written: April 19, 2016

Abstract

Purpose − The purpose of this study is to examine stock price and trading volume reactions to name changes of the Toronto Stock Exchange listed companies. Previous studies present conflicting evidence on reactions to corporate name changes in U.S. and other capital markets.

Design/methodology/approach − This study uses the event study methodology to calculate abnormal returns and trading volume around the announcement, approval, and effective dates of corporate name changes. It also contrasts abnormal returns between major and minor name changes, signaling focused and diversified strategies, accompanied with a ticker symbol change and without a ticker change, as well as structural and pure name changes.

Findings − Companies tend to experience a significant run-up in stock price in the period preceding the announcement of a name change. The stocks also show a significant positive abnormal return around the effective date. In addition, corporate name changes are associated with significant increases in trading volume for several days starting from the approval date. Most importantly, the type of a name change matters, as reflected in significance levels of abnormal return and trading volume reactions to various types of corporate name changes.

Research limitations/implications − The limitation of this study comes from the difficulty to precisely identify the date when the market learns about a possible corporate name change.

Originality/value – This study is the first to examine market reactions to name changes of Canadian companies. Most importantly, whereas previous studies focus on the announcement day, this paper also considers the approval and effective days. It also contrasts responses between name changes accompanied with a ticker change and name changes without a ticker change.

Keywords: Abnormal Return, Canadian Companies, Event Study, Name Change, Trading Volume

JEL Classification: G12, G14, G34

Suggested Citation

Biktimirov, Ernest N. and Durrani, Farooq, Market Reactions to Corporate Name Changes: Evidence from the Toronto Stock Exchange (April 19, 2016). International Journal of Managerial Finance 13 (1), 2017, 50-69, Fox School of Business Research Paper No. 18-005, Available at SSRN: https://ssrn.com/abstract=3087816

Ernest N. Biktimirov (Contact Author)

Brock University, Goodman School of Business ( email )

1812 Sir Isaac Brock Way
St. Catharines, Ontario L2S 3A1
Canada
905-688-5550 Ext. 3843 (Phone)

Farooq Durrani

Temple University - Fox School of Business ( email )

Philadelphia, PA
United States

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