Purdue University Working Paper
28 Pages Posted: 28 Mar 2003
Date Written: April 2004
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.
Keywords: Behavioral Finance, Dotcom bubble, Managerial Timing, Gaming Behavior, Market Efficiency, Anomalies, Name Changes
JEL Classification: G12, G14
Suggested Citation: Suggested Citation
Khorana, Ajay and Cooper, Michael J. and Patel, Ajay and Rau, P. Raghavendra and Osobov, Igor, Managerial Actions in Response to a Market Downturn: Valuation Effects of Name Changes in the Dot.com Decline (April 2004). Purdue University Working Paper. Available at SSRN: https://ssrn.com/abstract=375820 or http://dx.doi.org/10.2139/ssrn.375820