Prof. Jayanth R. Varma's Financial Markets Blog

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Prof. Jayanth R. Varma's Financial Markets Blog, A Blog on Financial Markets and Their Regulation

© Prof. Jayanth R. Varma
jrvarma@iima.ac.in

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Wed, 14 Apr 2010

Icesave: What is in a name?

The Special Investigation Committee set up by the Icelandic parliament (Althingi) to investigate and analyse the processes leading to the collapse of the three main banks in Iceland submitted its report this week. A portion of the report is available in English.

One of the interesting stories in the report (Chapter 18, page 5) is about the choice of the brandname Icesave for the deposit accounts offered by the Icelandic Bank, Landsbanki in the UK and in the Netherlands. The SIC states:

... Arnason [CEO of Landsbanki] also described how the brand name Icesave was created. He claimed that Landsbanki representatives had initially thought it was negative for an Icelandic bank to market deposit accounts in the UK. An advertising agency employed by the bank pointed out that it would never be possible to conceal the origin of the bank and, therefore, it would be better to simply advertise it especially. As a result, the brand name “Icesave” was created.

... Research indicated that a simple and clear message together with a strong link to Iceland would prove beneficial.

I think this has some implication for the literature about the relationship between geographical names on stock prices. For example, Kee-Hong Bae and Wei Wang show that during the China stock market boom in 2007, Chinese stocks listed in the US that had China or Chinese in their names significantly outperform US listed Chinese stocks that do not have China or Chinese in their names. (“What’s in a ‘China’ Name? A Test of Investor Sentiment Hypothesis”, http://ssrn.com/abstract=1411788)

What the Icesave example shows is that the choice of the name is not independent of the advertising, pricing and other strategies of the company. Some of what appears to be the result of a name change might in fact be due to other changes in the company’s business and strategy.

This might be true even in case of other studies about the impact of name changes on the stock price. For example, Cooper, Dimitrov, and Rau (“A Rose.com by Any Other Name”, Journal of Finance, 56 (2001), 2371–2387) found that stock prices rose 74% when they changed their names to dot com names in 1999. Similarly, Rau, Patel, Osobov, Khorana and Cooper (Journal of Corporate Finance, 11 (2005), 319-335) showed that stock prices rose when firms removed dot.com from their name after the bubble burst.

It is possible that these name changes were also accompanied by changes in business strategies.

Posted at 16:58 on Wed, 14 Apr 2010     View/Post Comments (0)     permanent link