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Managerial Actions in Response to a Market Downturn: Valuation Effects of Name Changes in the dot.com Decline

Posted: 9 Apr 2004  

Ajay Khorana

Georgia Institute of Technology - Finance Area

Michael J. Cooper

University of Utah - David Eccles School of Business

Ajay Patel

Wake Forest University, School of Business

P. Raghavendra Rau

University of Cambridge

Igor Osobov

Georgia State University, Department of Finance

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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.

Keywords: Behavioral finance, market efficiency, dotcom firms

JEL Classification: G12

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. Journal of Corporate Finance, Vol. 11, Nos. 1-2, pp. 319-335, 2005. Available at SSRN: https://ssrn.com/abstract=526403

Ajay Khorana

Georgia Institute of Technology - Finance Area ( email )

800 West Peachtree St.
Atlanta, GA 30308
United States
404-894-5110 (Phone)
404-894-6030 (Fax)

Michael J. Cooper

University of Utah - David Eccles School of Business ( email )

1645 E Campus Center Dr
Salt Lake City, UT 84112-9303
United States

Ajay Patel

Wake Forest University, School of Business ( email )

1834 Wake Forest Road
Building 60, Farrell Hall
Winston-Salem, NC 27106
United States
336-758-5575 (Phone)
336-758-4514 (Fax)

P. Raghavendra Rau (Contact Author)

University of Cambridge ( email )

Cambridge Judge Business School
Trumpington Street
Cambridge, Cambridgeshire CB21AG
United Kingdom
3103626793 (Phone)

HOME PAGE: http://www.raghurau.com/

Igor V. Osobov

Georgia State University, Department of Finance ( email )

35 Broad St. 12th Fl
Atlanta, GA 30303
United States

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