A Rose.com by Any Other Name
What's in a name? Possibly returns that beat the market by nearly 100%. That's the conclusion reached by Michael Cooper, Orlin Dimitrov, and P. Raghavendra Rau, of the finance department at Purdue University. In a recent study of 95 businesses, they found that companies that had changed their names to include .com, .net, or Internet outdid the AMEX Inter@ctive Week Internet Index (also known as the @Net Index) by an average of 25% on the day of the change. (The @Net Index includes 50 companies involved in Internet infrastructure, access, content, and commerce, including AOL and Amazon.com.) The researchers also tracked 52 of those 95 companies over six months and reported that they outperformed the Index, on average, by a whopping 97%.
Many companies in the sample were relative unknowns, and Cooper speculates that their obscurity may have contributed to the dramatic effect. "As soon as they change their names, they get caught in screens that traders are using to pick stocks," Cooper explains. Traders buy, often without asking questions, and the price shoots up. Better-known companies, conversely, may be able to buck the dot-com trend. In March, Nasdaq-listed InfoSpace.com announced that it was dropping the ubiquitous suffix. Coincidence or not, that same day InfoSpace beat the @Net Index by 8%. --M.K.
After changing their names to include .com, .net, or Internet, the companies outdid the @Net Index by an average of 25%.