Why listed companies change their names: a new explanation based on behavioral signaling theory

XU Longbing1 CHEN Liyi1 SHAO Tian

(1.School of Finance, Shanghai University of Finance and Economics, Shanghai , China 200433)
【Knowledge Link】behavioral finance; salience effect

【Abstract】During the boom of our P2P industry, the listed firm Duolun changed its name to P2P. 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 test 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 is 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.

【Keywords】 changing firm names; behavioral signaling theory; salience effects;


【Funds】 Project of National Natural Science Foundation of China (71473157) Project of National Natural Science Foundation of China (71773073)

Download this article

(Translated by ZHONG Yehong)


    [1]. ① On May 11, 2015, Shanghai Duolun Industry Co., Ltd. announced a resolution to change its name to “P2P Financial Information Services (Shanghai) Co., Ltd.” On July 9, 2015, P2P Financial Information Services (Shanghai) Co., Ltd. announced that the abbreviation of its securities was changed from “Duolun Stock” to “P2P” since July 16, 2015 after applying to Shanghai Stock Exchange, and the securities code remained unchanged. [^Back]

    [2]. ① Belenzon et al. (2017) proposed that companies named after the founders had stronger profitability, and such corporate names were a signal. [^Back]

    [3]. ② Salience is originally a concept of psychological research. Taylor and Thompson (1982) point out that “salience refers to such a phenomenon that when one’s attention is focused on a part of the environment, the information contained in that part is given a disproportionate weight in subsequent decision-making.” Psychologists find that human attention is a kind of scarce resource, and the salient option is an important mechanism for humans to allocate their attention resources. The salience of option refers to some features that seem most unusual or surprising, but are easy to catch people’s eyes. People tend to over-interpret salient features. For example, if a person is taller, people tend to think that he plays basketball better. Therefore, salience effect may affect people’s judgment and ultimately affect people’s choice. [^Back]

    [4]. ① At present, domestic literature mainly adopts the following identification methods in the study of corporate name or stock name: (1) Directly taking the characters or words in the stock name, such as “science and technology” (Deng and Zeng, 2005); (2) building an evaluation system and score (Jia et al., 2016); (3) identifying literally, such as judging whether the name contains the nature of the industry (Zhang et al., 2013). The identification method in this paper is similar to the third method, which is used to make judgment based on the literal name of the company. The difficulty of the identification in this paper is to judge the popular industries. At present, the research on stock popularity is mainly carried out by using Baidu index (Yu and Zhang, 2012; Zhang et al., 2014), but these studies search by stock abbreviation or code, that is, make calculation based on the “list,” which belongs to “forward recognition.” However, the popular industries have no referable lists or definitions, and are constantly changing, making it difficult to achieve forward recognition. At present, there is no literature explicitly proposing the method identifying salience signal in empirical research. Based on the data on name change and Internet information, we conduct “reverse recognition,” which improves the accuracy to identify salience signal in the scenario therein. [^Back]

    [5]. ① The initial year of the samples that is selected in this paper is 2013, which may lead to fewer observations, but the integrity of Internet search results may greatly decline for too early years, which will ultimately lead to a significant decline in the accuracy of identifying the salience signal in this paper. [^Back]

    [6]. ② For example, China Resources Wandong made a change announcement on September 22, 2016 that its abbreviation would be formally changed as “WDM” on September 28, and that this day was defined as the “day of formal name change .” [^Back]

    [7]. ③ In sample processing, the samples whose first announcement day is the same day as the day of formal change in abbreviation has been eliminated. So there is no insider information before the day of formal change, and the stock return in the lagged trading days is not be taken into account in the empirical test. [^Back]

    [8]. ① The reason why this paper chooses the hot issue of that year to match without considering the previous year is that the popular industries of the previous year has very little impact on the decision-making on the corporate name change, because new hot issues emerge from time to time in the market. Corporate managers are rational and pursue profit maximization, so they more tend to choose latest hot issues instead of the popular industries in the previous year. [^Back]

    [9]. ② Based on the method of manual identification, it is regarded as a popular industry if the concept involved in name change is speculated by the market. [^Back]

    [10]. ③ The industry upsurge often lasts for a longer time, and even reappears in market focuses. So the keywords in Table 1 may repeat in different years. The name change behavior occurs after the industry upsurge, so it is not necessary to focus on distinguishing between the time of name change and the rise of industry upsurge. [^Back]

    [11]. ① The test results of Hypothesis 1 show that the salience signal of name change may cause investors to overreact within 10 trading days after the name change. It is the most advantageous for corporate insiders to take advantage of investments’ enthusiasm in these 10 trading days to reduce stock holding, so we choose 10 trading days here as the short-term window period for test. [^Back]

    [12]. ① One possibility is that the company changed its name after acquisition and reorganization, but the popular industry is basically a new one, and there lacks good objects available for acquisition and reorganization in the market. So the main business of the company has not changed substantially. [^Back]


    [1] Chen, S., Sun, J. & Shen, Y. Review of Investment Studies (投资研究), (2): 113–131 (2012).

    [2] Deng, J. & Zeng, Y. Chinese Journal of Management (管理学报), (4): 455–458 (2005).

    [3] Deng, J. & Zeng, Y. Journal of Zhangzhou Normal University (Philosophy & Social Sciences) (漳州师范学院学报(哲学社会科学版)), (3): 1–6 (2006).

    [4] Deng, J., Zeng, Y. & Tang, X. China Soft Science (中国软科学), (3): 40–45 (2004).

    [5] Fang, C. Journal of Shanxi University of Finance and Economics (山西财经大学学报), (2): 36–48, (2016).

    [6] Huang, M., Li, L. & Xie, K. Journal of Guangdong Business College (广东商学院学报), (5): 35–38 (2006).

    [7] Jia, L., Zhu, Y. & Chen, D. Journal of Financial Research (金融研究), (5): 173–190, (2016).

    [8] Li, G., Tang, G. & Liu, L. Management World (管理世界), (1): 40–51 (2011).

    [9] Li, X., Yu, H., Lu, R. et al. Management World (管理世界), (11): 133–145 (2014).

    [10] Liu, L. & Tian, Y. The Journal of World Economy (世界经济), (1): 44–50 (2004).

    [11] Liu, Y. Nankai Economic Studies (南开经济研究), (1): 45–56 (2008).

    [12] Wang, Q. Journal of Shanxi University of Finance and Economics (山西财经大学学报), (S2): 180 (2009).

    [13] Xie, D., Cui, C. & Liao, K. Journal of Financial Research (金融研究), (11): 158–173 (2016).

    [14] Zhang, M., Shui, Y. & Chen, M. Journal of Finance and Economics (财经研究), (11): 112–122 (2013).

    [15] Zhang, X. & Xu, L. Journal of Financial Research (金融研究), (11): 158–174 (2017).

    [16] Bae K H, Wang W. What’s in a “China” name? A test of investor attention hypothesis. Financial Management, 2012, 41 (2): 429–455.

    [17] Baker M, Mendel B, Wurgler J. Dividends as reference points: A behavioral signaling approach. The Review of Financial Studies, 2016, 29 (3): 697–738.

    [18] Baker M, Wurgler J. Behavioral corporate finance: An updated survey. Constantinides G M, Harris M, Stulz R M. Handbook of the economics of finance. North-Holland, 2013.

    [19] Belenzon S, Chatterji A K, Daley B. Eponymous entrepreneurs. American Economic Review, 2017, 107 (6): 1638–1655.

    [20] Bordalo P, Gennaioli N, Shleifer A. Salience theory of choice under risk. The Quarterly Journal of Economics, 2012, 127 (3): 1243–1285.

    [21] Bordalo P, Gennaioli N, Shleifer A. Salience and asset prices. American Economic Review, 2013a, 103 (3): 623–628.

    [22] Bordalo P, Gennaioli N, Shleifer A. Salience and consumer choice. Journal of Political Economy, 2013b, 121 (5): 803–843.

    [23] Clor-Proell S, Proell C A, Warfield T D. The effects of presentation salience and measurement subjectivity on nonprofessional investors’ fair value judgments. Contemporary Accounting Research, 2014, 31 (1): 45–66.

    [24] Cooper M J, Gulen H, Rau P R. Changing names with style: Mutual fund name changes and their effects on fund flows. The Journal of Finance, 2005, 60 (6): 2825–2858.

    [25] Cooper M J, Dimitrov O, Rau P R. A Rose.com by any other name. The Journal of Finance, 2001, 56 (6): 2371–2388.

    [26] Da Silva Rosa R, Durand R B. The role of salience in portfolio formation. Pacific–Basin Finance Journal, 2008, 16 (1–2): 78–94.

    [27] Hennessy C A, Livdan D, Miranda B. Repeated signaling and firm dynamics. Review of Financial Studies, 2010, 23 (5): 1981–2023.

    [28] Huang X, Nekrasov A, Teoh S H. Headline salience, managerial opportunism, and over–and underreactions to earnings. SSRN Working Paper, 2018.

    [29] John K, Williams J. Dividends, dilution, and taxes: A signalling equilibrium. The Journal of Finance, 1985, 40 (4): 1053–1070.

    [30] Kahneman D, Tversky A. Prospect theory: An analysis of decision under risk. Econometrica, 1979, 47 (2): 263–292.

    [31] Kalay A, Kronlund M. The market reaction to stock split announcements: Earnings information after all. SSRN Working Paper, 2014.

    [32] Mcnichols M, Dravid A. Stock dividends, stock splits, and signaling. Journal of Finance, 1990, 45 (3): 857–879.

    [33] Muscarella C J, Vetsuypens M R. Stock splits:Signaling or liquidity? The case of ADR ‘solo-splits’. Journal of Financial Economics, 1996, 42 (1): 3–26.

    [34] Spence M. Job market signaling. The Quarterly Journal of Economics, 1973, 87 (3): 355–374.

This Article


CN: 31-1012/F

Vol 44, No. 08, Pages 74-87+153

August 2018


Article Outline



  • 1 Introduction
  • 2 Sample and variable
  • 3 Empirical test
  • 4 Robustness test
  • 5 Conclusions
  • Footnote