During the boom of our P2P industry, the listed firm Duolun changed its name to Pitupi. This is a typical case for catching up with an industrial boom by changing the firm name, which is a common phenomenon in domestic and foreign stock markets. Why do listed firms love to change their names? With the frontier behavioral signaling theory, this paper reveals economic principles of this phenomenon. Different from the traditional signal, the behavioral signal is set according to receivers’ behavioral bias and affects receivers’ decision-making rather than delivers’ fundamental information. The behavior signal theory is more applicable to explaining the reason why listed firms love to change names especially names related to " hot” industries. The data we use in this paper are all events of name changing by A-share listed non-financial firms from 2013 to 2016, but first, we need to identify the salience signal from these events. We use a unique method called " reverse identification” since there is no existing referential method to follow. Specifically, we list all new firm names after being changed and compare them with information from the Internet. If some word in a new name is related to a booming industry at that time, this name is defined as a name that can send the salience signal to investors. The potential control group includes all firms without name changing, and we use propensity score matching (PSM) to pick the control group according to the empirical design.Using this identification method, our study finds that changing names to " hot” words can induce irrational investors’ " salience effect” which is a kind of psychological bias. Managers take use of name changing to send the behavioral signal, and irrational investors will make decisions according to this signal. Further, we want to find out managers’ motive for changing names. We put forward three hypotheses and check them respectively. The results show that managers’ name changing behaviors are not driven by their demand for selling stock or their willing to get out of financial distress. The true purpose of sending the salience signal by changing names is to highlight firms’ transition. However, the performance of these firms is not becoming better, which means that the behavioral signal is used to affect investors’ behaviors rather than deliver fundamental information. What’s more, we test the mechanism of behavioral signaling by using the events of name changing without " hot” words as the control group and find the similar results. This paper expands the behavioral signaling theory by Baker, et al. (2016) to a new type of signal, which is with the salience effect, and provides empirical evidence. Our results provide a new perspective to understand irrational behaviors induced by the behavioral signal and regulate the phenomenon of name changing.
Why do Listed Firms Change Names? A New Explanation Based on the Behavioral Signaling Theory
Journal of Finance and Economics Vol. 44, Issue 08, pp. 74 - 87,封三 (2018) DOI:10.16538/j.cnki.jfe.2018.08.006
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Cite this article
Xu Longbing, Chen Liyi, Shao Tian. Why do Listed Firms Change Names? A New Explanation Based on the Behavioral Signaling Theory[J]. Journal of Finance and Economics, 2018, 44(8): 74-87.