Reputational damage and name changes: Impact of financial crimes

• Published date: 01 March 2023
• Author: Omer Unsal
• Date: 01 March 2023
• DOI: http://doi.org/10.1111/corg.12465

ORIGINAL ARTICLE

Reputational damage and name changes: Impact of financial

crimes

Omer Unsal

Girard School of Business, Merrimack College,

North Andover, Massachusetts, USA

Correspondence

Omer Unsal, Girard School of Business,

Merrimack College, 315 Turnpike Street,

North Andover, MA 01845, USA.

Email: unsalo@merrimack.edu

Abstract

Research Question: This study examines the relation between reputational issues

and name-change decisions among US financial firms. I examine if financial firm name

changes are related to reputational concerns and whether or not financial firms try to

distance themselves from misconduct by adopting a new name.

Research Findings/Insights: I document that firms adopt a new name to disassociate

themselves from reputational concerns. I find that investors react negatively to

name-change announcements for firms with reputational issues. My findings also

suggest significant corporate upheaval following misconduct, such as dampening

performance.

Theoretical/Academic Implications: My research is the first to investigate market

reactions to name changes in the US financial industry. My paper utilizes several

unique hand-collected datasets of corporate wrongdoings, violations, frauds, and

other financial crimes to measure firm reputation and test whether name changes are

related to reputational concerns.

Practitioner/Policy Implications: I not only measure pre-event misconducts for name

changes but also analyze the future firm performance following financial misrepre-

sentations. My paper adds to the growing literature of firm reputation, brand image,

and firm value.

KEYWORDS

corporate governance, reputation, corporate name change, financial crime, brand name

1|INTRODUCTION

Reputation is essential for businesses. Yet, many firms engage in

various incidents that hurt their brand name. The damage from

those misdemeanors creates both public reaction (i.e., indirect cost)

and monetary penalties (i.e., direct cost) which could be substantial

for those who are involved. In this study, I examine the financial

consequences of a bad corporate image by analyzing misconduct,

resulting in investigation and attention from major media and public

sources.

I measure reputational events by using unique datasets of finan-

cial violations, frauds, market manipulations, corruption claims, and

other financial crimes. I then examine the likelihood of a company

changing its name following such corporate wrongdoing, as well as

the consequences and subsequent operating performance of the

responsible firms. The penalties for financial wrongdoings can be

heavy. For example, “AIG settles for $1 billion for fraud-related

charges,”

1

“Invesco pays $325 million for financial malpractice,”

2

“SunTrust Mortgage pays $320 million for mortgage fraud,”

3

“Marsh &

McLennan settles lawsuit for $500 million due to pension suit”,

4

“Federal Mortgage National Association (‘Fannie Mae’) pays $400

million for accounting fraud,”

5

“Morgan Keegan agrees to pay $200

million for toxic securities charges,”

6

or “Atlanticus Holding $114 mil-

lion for banking violation.”

7

Hence, I believe that violations relating to

financial issues, consumer savings, customer spending, property

financing, or other financial transactions can lead to serious doubts in

Received: 30 March 2021 Revised: 14 May 2022 Accepted: 16 May 2022

DOI: 10.1111/corg.12465

334 © 2022 John Wiley & Sons Ltd. Corp Govern Int Rev. 2023;31:334–348.wileyonlinelibrary.com/journal/corg