Investor’s Response to Corporate Name Changes – An Empirical Study on Taiwan Security Market

Companies adopting new names are frequently reported in the business press, previous researches have studied the relationship between firms' new names and stock prices, but not considered whether the stock prices reflect corporate fundamental values. This paper uses a market signaling perspective to examine investor reactions to companies' name change on Taiwan Security market. A database of corporate name changes compiled from secondary sources is explored as a first step in searching for empirical insights on the name changes. This empirical research enables us to address investors' responses to corporate new names. There is sufficient evidence to conclude that investors have positive reaction to corporate new names regardless of whether a corporation has changed the business nature after adopting a new name. This irrational investment behavior causes increase of stock price and abnormal returns in security market when a corporation announces a new name