The Trend of Corporate Name Change

552 From 2004 to 2008, there are 24 firms changing their corporate names twice in a year and 91 firms have changed their name twice for 5 years. Twenty four KOSDAQ firms have changed their names twice in a year and three firms have changed their names up to five times over the period of 2004 to 2008. So we examine the features of corporate name change based on KOSDAQ firms. Figure 2 reports industry dispersion of corporate name change firms from 2004 to 2008. 98 Electronic·computer Manufacturing companies changed their names and 90 Broadcast and media companies and 70 service companies changed their names. It means corporate name changes happen in all over the industry, not in some industry. [Figure 2] Industry dispersion of corporate name changes 3. 2 The Reason for Corporate name changes According to the previous study, the reasons for corporate name change could be due to show expanded product offerings and strategic direction, to reflect company diversification and expansion, to provide a more universally representative name, and to reflect new identity following a change in ownership. Based on previous study we partitioned the reasons for corporate name changes into 6 cases from 2004 to 2008. The largest stockholders change, the foreign ownership and export proportion data were retrieved electronically from KIS-VAUE database and the data about primary product change, consolidation and diversification during the study period were manually collected from KIND of Korea Exchange. Table 1 report the partition of reasons for corporate name change firms who were able to figure out. 20 40 60 80 100 120 Computer Hardware Electronic manufacturing Wholesale Trade BroadcastingMedia Services Non-elect. Machinery Others. 553 Table 1 Reasons for corporate name changes Reasons for corporate name changes Numbers Percent Change in primary products two consecutive years 18 4.6 Industry change from spin-offs 22 5.5 Industry change from consolidations 28 7 Increase in foreign ownership 20 5 Increase in export proportion 44 11.2 Change in largest stockholders 261 66.4 SAMPLE2004~2008 393 100 We find that the 60 of corporate name change firms have changed largest stockholders at the same year. And firms who announced the reason for change to industry change from consolidation or diversification were 50 firms and 18 firms announced the reason for change to the change of the primary products. We investigate the foreign ownership and the export proportion but we find that most of the ownership and the proportion of corporate name change firms were rather decreased after changing. We partitioned the pattern of corporate name changes in table 2. Almost 90 firms changed corporate name to English name from Korean name or to another English name from English name and only 13 firms changed to Korean name from Korean or English name. Table 2 Pattern of corporate name changes Pattern of corporate name changes Numbers Percent from KoreanEnglish name To Korean name 13 2 Add holdings for change to a holding company 12 2 Industry change 23 5 From KoreanEnglish name To English name 462 90 SAMPLE2004~2008 511Firms 100 According to press report, investors feel that English corporate name firms are like small, unfaithful and they generally have a negative image to English name using firms. 3. 3. Characteristics of corporate name change firms We examine the other disclosure of corporate name changes firms to find the features of them from 2004 to 2008. According to press report, investment experts warn to invest the firms who change corporate name in the KOSDAQ because there 554 are so many firms changing their names to disguise negative image as stock price handling, embezzlements of management in KOSDAQ. We find that almost 30 of corporate name changes firms are administrative issues in the KOSDAQ market. We also find that there are 140 firms who announced the embezzlements or misappropriation of management from 2004 to 2008 and 64 firms changed their name after the announcement. We performed mean difference test to investigate the characteristics of firms who change corporate name using financial statements. We report the result of comparison between corporate name change firms and non- changing firms in table 3. We run parallel Mann-Whitney test to minimize the problem of rare elimination of odds. [Table 3 about here] Table 3 shows that average leverage ratio is higher for corporate name change firms than for the control firms and there is significant difference between them. We find that there is significantly big difference between two groups in current net income and operating income. And corporate name change firms have lower cash from operationsCFO than control firms and the difference between two groups are significantly big. In conclusion, we find that corporate name change firms generally report bad performance comparing non-changing firms and many corporate name change firms announce the embezzlements or misappropriation of management. Also there are many corporate name change firms of administration from KOSDAQ market. And there are general changes as industry change or largest stockholders change in the corporate name change firms.

4. Empirical results

4. 1 Descriptive statistics and Variables correlation Table 4 presents the mean, lower quartile, median, and upper quartile, standard deviation of the dependent and independent variables used in the study. Average 9 percent of KOSDAQ firms changed their name and 73 percent of them report current losses. 61 percent and 13 percent of them change the largest stockholders and industry respectively, we show that in Panel 1. Cash from operationsCFO, operating incomeOP and return in assetsROA of corporate name change firms is lower than total firms, it means that firms who report bad 555 performance tend to change their name. And the leverage ratio of corporate name change firms is higher and the size of corporate name change firms is smaller than Panel 2, so we find that the smaller firms more change their name. [Table 4 about here] The standard deviation of operating income and return on assets is big so that we try to minimize the eliminations of observations to represent the features of corporate name change firms. Instead we run parrel Mann-Whitney test for non-parametric statistics. Table 5 shows the correlation coefficients between the pairs of the variables of interest for the sample in Panel 1 corporate name change firms and Panel 2total firms. [Table 5 about here] The result of correlation analysis for both Panel 1 and Panel 2 indicates that corporate name change firm is significantly negatively correlated with discretionary accruals. It also shows that corporate name change by loss-reporting firms is significantly negatively correlated with discretionary accruals. And corporate name by largest stockholders change firms is significantly negatively correlated with discretionary accruals in panel 1. We find that cash from operationsCFO and total accrualsTA have a significant negative relationship and Leverage ratios have a significant negative relationship with both TA and DA. However, the growth rate of sales and the size of firms do not exhibit significant relationship with accruals. 4. 2 Regression Analysis The regression results for hypothesis 1 are reported in table 6. [Table 6 about here] The results are reported for regression DA1 2, 3 on NC and controlling for CFO, LEV, SIZE, GRW. We do not control CFO in model 2 because we already control it during drawing model 2. For all model, the coefficients on NC are negative and significant at the .01 level. We expect that corporate name change firms will lower their earnings because most of them have high debt-ratio or are administrative issues in the KOSDAQ market, so they cant manage earnings upward. We find that corporate name change firms have