For any dot-com looking to boost its stock price, here's one way to do
it: Lose the dot-com from your name.
That's enough to send stock prices soaring since Internet and high-tech
stocks took a dive three years ago, claims Panambur Raghavendra Rau, an
assistant professor of management at Purdue University.
Rau and his colleagues found that the stock prices of companies that
dumped the dot-com extension from their names (such as Zap.com, a
California-based maker of electric bicycles, which became just plain old
Zap) jumped an average of 10 percent on the day they announced the shorter
name. Two days after the change, these 48 stocks were up an average of 17
percent; a month later, they had risen 29 percent -- all due to their new
names, Rau contends. "It was as if the dot-com name was toxic," he said
with a laugh. "It was as if people thought it was something different even
though it was the same company it was before."
To measure the value of a name change, these researchers tracked the
stock prices of 150 companies that had changed their names between June 1,
1998, and Aug. 31, 2001. All of the companies were publicly traded on the
New York or American stock exchanges, the Nasdaq or the Over-the-Counter
Bulletin Board stock markets. To make the list, a company had to have
adopted some form of the appellation .com (Wareforce.Com), .net
(DocPlus.net Corp.), .web (Home.web Inc.), or had to have used
a word in its name that suggested an Internet connection.
Then they matched each dot-com firm to one that was virtually identical
in ways that might affect stock performance, including total sales,
product and earnings. They also compared the movement of dot-com stock
prices with the overall average of all Internet stocks in that sector. By
tracking the relative performance of the former dot-com companies with
their twins, researchers were able to estimate the impact of the name
switcheroo on stock prices.
"The name change alone made a huge difference," Rau said. "It shouldn't
have. But it did."
In an earlier paper, Rau looked at the effect of adding a dot-com
variation to a corporate name before August 2000, generally
considered the high water mark for Internet stocks.
In those happier days in Silicon Valley, adding .com to a name
was golden: The change alone added an extra 28 percent to the value of the
stock on the day it was announced, Rau reported in the December 2001 issue
of the Journal of Finance. Six months later, the new name was still money
in the bank, inflating the price of the stock by 18 percent over the
shares of equivalent firms without dot-com names.
The power of adding a dot-com variation to a name was so great that it
helped 10 companies in his sample even though they had nothing to do with
the Internet -- including Go-Rachels.com., a maker of gourmet potato chips
that didn't even have a Web site when it adopted its cyber-sounding name.
(Rau said something similar happened during the late 1920s, when airline
stocks were soaring. "In one case, investors rushed to purchase shares of
Seaboard Airlines, which turned out to be a renamed railroad stock," he
said.)
In their most recent study, Rau and his colleagues asked one additional
question: If adding a dot-com extension helped stock prices during the
boom years and dropping it helped during the bust, what happened to firms
that did both?
It was win-win, Rau said. "They got the same bumps up. It was as if the
market didn't seem to realize that they had done this before. We were just
cracking up."
Rau said Internet and other tech-related stocks are particularly
vulnerable to this kind of mindless movement because buyers often are day
traders who spend little time researching the firms they invest in. One
Harvard researcher found that the stock price of MassMutual Corporate
Investors, whose ticker tape symbol is MCI, went through the roof every
time the telephone giant MCI announced good news. "People were clearly
buying and selling the wrong stock," Rau said.
Sad Boss, Happy Employee
Feeling good? That may be bad -- people are more likely to make
judgments based on stereotypes when they're feeling upbeat rather than
when they're down, said Norbert W. Schwarz, a psychology professor and
senior research scientist at the University of Michigan's Institute for
Social Research (ISR).
He reviewed every major study on how moods and emotions affected
reasoning style for his recent book "The Wisdom in Feelings." He said
research consistently shows that bad moods seem to promote a more careful,
analytic reasoning style, while good moods are linked to a reliance on
preexisting knowledge, the use of mental short cuts and resorting to
stereotypes.
So make sure your boss is in a sad mood when doing your annual job
evaluations. "A happy boss is more likely to judge your performance on the
basis of negative group stereotypes instead of your contributions as an
individual," Schwarz wrote in the latest issue of the ISR Review.
LUNCH WITH THE WIZ Over the years, your Unconventional Wiz has
benefited from uncommonly wise readers who have sent him scholarly
articles that had just the right mix of wit and wisdom to be deserving of
attention in this column. Now it's payback time: Any reader who alerts
your Wiz to a just-published scholarly study or working paper that is
subsequently featured in this space will win a lunch with the Wiz. We
already have our first winner: Russell Pittman, director of economic
research and director of international technical assistance for the
economic analysis group of the antitrust division of the Department of
Justice (my, but that's an uncommonly long title). Pittman tipped me to
the dot-com name study.
If you think a research article is Wiz-worthy, my e-mail address is:
morinr@washpost.com.
Unconventional Wisdom
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