fine feathers make fine birds wealth effects and the choice.pdf

Fine Feathers Make Fine Birds? Wealth Effects and the Choice between Major and Minor Corporate Name Changes * Patrick Göttner and Peter Limbach Karlsruhe Institute of Technology (KIT), Department of B anking and Finance Second Draft: January 2011 Abstract This study is the first to investigate the causes and effects of corporate name changes in Continental Europe using a sample of German firms in the period 1997-2009. We report a positive and significant stock market reaction to announcements of corporate name changes considerably different for major and minor name changes. Regression results show that prior firm performance positively affects the observed stock returns. Short-term effects turn out to be transitory as firms significantly underperform the German CDAX in the year after the name change was announced. As the first study, we examine the impact of performance and corporate governance on the probability of corporate name changes and show that managers react to poor firm performance by implementing more expensive major name changes. This can be interpreted as an attempt to cloud poor past performance of both the firm and the management. Accordingly, we document a positive relation between management influence, available cash, and the probability of major name changes. Keywords: corporate name changes, corporate governance, event studies, reputation JEL classification: G14, G30, G34  We thank Thomas Burdelski, Markus Doumet, Andreea Hannich, Torsten Lüdecke, and seminar participants at Karlsruhe Institute of Technology for helpful discussions. We are especially indebted to Christian Andres, André Betzer, and Martin Ruckes for very insightful comments and discussions. All omissions and errors are our own. * Correspondin