On Oct. 4, the stock that used to trade with the ticker CREE began trading as WOLF
WOLF,
,
reflecting the company’s name change from Cree to Wolfspeed.
Shares of Wolfspeed jumped 1.2% on a day when the Nasdaq Composite index
COMP,
dropped 2.1% — a margin of outperformance of 3.3 percentage points.
Is it coincidental that Wolfspeed stock outperformed the market on the day it started trading under the new ticker? Perhaps not.
Many companies over the years have changed their names, and many have outperformed the market in the days immediately after doing so. Unfortunately, according to the consensus of academic studies I read, a company’s name change does not on average improve its stock performance over the longer term — and may actually hurt it.
In the case of Wolfspeed, the name change completes that company’s several-year process of shifting from being primarily an LED lighting company and becoming a semiconductor company. The question is not whether it was a good idea for the company to bet its future on semiconductors instead of LED lighting. The question is whether, given that Wolfspeed has already shifted towards semiconductors, its stock will perform better with the ticker WOLF than CREE. (An email to Wolfspeed’s media relations office requesting comment was not immediately answered.)
If the stock market were completely rational, then a name and ticker change would have no effect on the share price. That’s because the changes are merely cosmetic, having no impact on a company’s profitability. If the change does affect stock performance, it must be evidence of investor sentiment rather than fundamentals. That’s just what many studies have found.
Name game
One channel through which a name or ticker change can impact performance traces to investors’ preference for cute or salient names and tickers. In an interview, Michael Cooper, a finance professor at the University of Utah, pointed out that “CREE,” in and of itself, carries no meaning. “WOLF,” in contrast, is instantly recognizable, and moreover carries many positive associations for qualities that investors might like to see in their companies. For example, characteristics the dictionary lists for “wolf” include predatory, rapacious, and fierce.
Cooper referred to a study that appeared several years ago which found companies with “familiar and likeable” names and tickers “trade at significant premiums” relative to companies with unfamiliar or unlikable names.
Another channel through which name changes can impact performance is by tapping into investor euphoria about a particular theme or technology. It’s less clear that this channel is relevant to Wolfspeed’s name and ticker change, though it may still play a role, given investor excitement with the semiconductor technology.
A spectacular illustration of this effect recently was the performance…
Opinion: What’s in a company name change? Often a higher stock price.
On Oct. 4, the stock that used to trade with the ticker CREE began trading as WOLF
WOLF,
,
reflecting the company’s name change from Cree to Wolfspeed.
Shares of Wolfspeed jumped 1.2% on a day when the Nasdaq Composite index
COMP,
dropped 2.1% — a margin of outperformance of 3.3 percentage points.
Is it coincidental that Wolfspeed stock outperformed the market on the day it started trading under the new ticker? Perhaps not.
Many companies over the years have changed their names, and many have outperformed the market in the days immediately after doing so. Unfortunately, according to the consensus of academic studies I read, a company’s name change does not on average improve its stock performance over the longer term — and may actually hurt it.
In the case of Wolfspeed, the name change completes that company’s several-year process of shifting from being primarily an LED lighting company and becoming a semiconductor company. The question is not whether it was a good idea for the company to bet its future on semiconductors instead of LED lighting. The question is whether, given that Wolfspeed has already shifted towards semiconductors, its stock will perform better with the ticker WOLF than CREE. (An email to Wolfspeed’s media relations office requesting comment was not immediately answered.)
If the stock market were completely rational, then a name and ticker change would have no effect on the share price. That’s because the changes are merely cosmetic, having no impact on a company’s profitability. If the change does affect stock performance, it must be evidence of investor sentiment rather than fundamentals. That’s just what many studies have found.
Name game
One channel through which a name or ticker change can impact performance traces to investors’ preference for cute or salient names and tickers. In an interview, Michael Cooper, a finance professor at the University of Utah, pointed out that “CREE,” in and of itself, carries no meaning. “WOLF,” in contrast, is instantly recognizable, and moreover carries many positive associations for qualities that investors might like to see in their companies. For example, characteristics the dictionary lists for “wolf” include predatory, rapacious, and fierce.
Cooper referred to a study that appeared several years ago which found companies with “familiar and likeable” names and tickers “trade at significant premiums” relative to companies with unfamiliar or unlikable names.
Another channel through which name changes can impact performance is by tapping into investor euphoria about a particular theme or technology. It’s less clear that this channel is relevant to Wolfspeed’s name and ticker change, though it may still play a role, given investor excitement with the semiconductor technology.
A spectacular illustration of this effect recently was the performance…
Read More: Opinion: What’s in a company name change? Often a higher stock price.