Does corporate rebranding affect stock market prices? A bootstrapping approach

Objectives: Corporate rebranding has been used by firms in order to differentiate themselves and to promote the corporate image. As corporate rebranding decisions aim to add value to the firm, by sending a positive sign to stakeholders, the success and economical rationale of these decisions may be judged by identifying its impact on firm value, i.e., the impact on the firm’s stock price. A corporate rebranding signals the market that something in the firm has changed, hopefully implying a more positive outlook. According to the efficient markets literature, in a well functioning capital market, stock prices are the best available unbiased estimates of the value of the assets of a firm.  Financial market valuation incorporates the expected future returns of rebranding actions. In this study, we analyse the impact of a corporate rebranding event on the firm’s stock price thus adding both to the empirical evidence on this type of event and to evidence on smaller capital markets.

Data/Methods: In this paper, we apply event study methodology to firms listed on the Lisbon stock market in the period January 2000 – April 2010, to analyze the impact of their corporate rebranding events on market value. Returns’ characteristics such as fat tails and heteroskedasticity, which are well-documented, can introduce a bias in statistical inference that is based on the assumption that the error process is homoskedastic and normally distributed. To overcome this limitation, we use a more robust approach, based on a two-stage bootstrap approach. First, we normalize the conventional Z statistic, allowing it to follow an asymptotic standard normal distribution. Secondly, we use bootstrap resampling to generate the empirical distribution of the normalized test statistic.

Results/Expected Results: Preliminary findings show a non-significant impact of the rebranding event on firm’s market value. This result is consistent with previous studies applied to other markets. Further research will allow for support (or not) of this conclusions.

 Keywords: corporate rebranding, differentiation, stock prices, event study, bootstrap