There’s one choice every business, large and small, must make: what to name itself. It appears that more talented and confident entrepreneurs are more likely to name their firms after themselves, self-selecting into a group taking a risky approach, but one that can pay off handsomely.
We found entrepreneurs who name their firms after themselves are sending a powerful signal about their confidence that, when they succeed, translates into greater success than firms with anonymous names. (whether family-owned or not) Well-known examples include Dow Chemical, Gucci, Guinness, Hewlett-Packard, Hess, Johnson and Johnson, Kroger, Porsche, Proctor and Gamble, Ryanair, Walgreens, and many others.
Our theory is that they are raising the stakes by betting their own names on the success of their company.
Most research into entrepreneurship is about choices that not everybody has. For example, you can only raise capital if you have interested investors. You can only hire employees if you have the resources. But naming is a choice every small business has to make.
Conventional wisdom says you should never name a firm after yourself because it demonstrates a lack of creativity and hurts resale value, since most buyers won’t want to be tied to a previous owner’s name. We studied more than a million firms in Europe, controlling for age and ownership structure, and found that less than one in five were named for their founders. But we also found the return on assets for those so-called eponymous firms was 3 percentage points better than similar, non-eponymous companies.
People who are more confident in their ability to succeed are more likely to strengthen their attachment to a firm by naming after themselves. That’s what seems to be driving this improved performance. But changing a venture to your own name isn’t a party trick that leads to success. It’s not that simple. What’s more significant is the kind of entrepreneurs who do something like that in the first place.
We see that even more clearly among entrepreneurs with less common names who make this choice. Our logic is that if you have a more common name, you are going to be more willing to attach it to your firm because you’re less likely to be forever associated with failure if the firm doesn’t succeed. Consequently, a more unusual name would make it even harder to escape the shadow of failure.
We were able to look at the rarity of names across regions to see whether that affected how many entrepreneurs named firms after themselves. We found the rarer your name, the less likely you were to name a firm after yourself. We see a beautifully smooth curve where the more common your name is the higher the incidence of eponymy is, which is exactly what the model predicted.
We also found the performance effects for eponymous firms were more pronounced for founders with unusual names. So if you’re attached to a firm in this way and it does really well, you’re going to do even better than if it was an anonymously named firm. But on the flipside, if you do badly, the personal costs are higher.
Our theory is that only the best of the best will name a firm after themselves if their name is unusual, because there’s more at stake. The only people willing to do it are those who aren’t as worried about the downside because they are confident their ability will bring them success.
The naming decision is no guarantee of underlying quality in a firm. Ultimately, a name is just one kind of signal, but it can be a powerful indicator of who’s behind a firm. In entrepreneurship, it matters how attached the individual is to the firm. At the beginning they are like one entity, and our research offers one of the first glimpses of how important that attachment can be.
- This blog post is based on the authors’ paper Eponymous Entrepreneurs, in American Economic Review, vol. 107, no. 6, June 2017.
- The post gives the views of the authors, not the position of LSE Business Review or the London School of Economics.
- Featured image credit: Ryanair, by Adrian Pingstone, Public domain, via Wikimedia Commons
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Aaron Chatterji is an Associate Professor at Duke University’s Fuqua School of Business. He previously served as a Senior Economist at the White House Council of Economic Advisors (CEA) where he worked on a wide range of policies relating to entrepreneurship, innovation, infrastructure and economic growth. Chatterji’s research and teaching investigate some of the most important forces shaping our global economy and society: entrepreneurship, innovation, and the expanding social mission of business. He was awarded an inaugural Junior Faculty Fellowship from the Kauffman Foundation to recognize his work as a leading scholar in entrepreneurship. He also received the Rising Star award from the Aspen Institute for his work on business and public policy. Chatterji is a term member of the Council on Foreign Relations and previously worked as a financial analyst at Goldman Sachs. He received his Ph.D. from the Haas School of Business at the University of California at Berkeley and his B.A. in Economics from Cornell University.
Sharon Belenzon is an Associate Professor (with tenure) in the Strategy unit at the Fuqua School of Business of Duke University, and a Research Associate at the National Bureau of Economic Research (NBER). His research is dedicated to advance the understanding of how firm organizational structure mediates, and is mediated by, firm strategy, and of how investments in science by corporations and by universities affect technical change. His research has been featured in top academic journals, such as Management Science, Strategic Management Journal, American Economic Review, Review of Economics and Statistics, Economic Journal, Research Policy and Journal of Law and Economics. Professor Belenzon received his PhD from the London School of Economics, and completed post-doctorate work at the University of Oxford, Nuffield College. He has also been the recipient of the Kauffman foundation post-doctorate fellowship at the NBER. He earned MA and BA degrees in Economics from Tel-Aviv University. Belenzon has been an Associate Editor for Management Science from January 2016 and for Strategic Management Journal from July 2016.
Brendan Daley is an Associate Professor of Finance at the University of Colorado’s Leeds School of Business. His research interests are in economic theory, especially focusing on the role of information in markets. His current research program investigates the effect of information, such as from ratings or due diligence, on market prices, trade volume, and efficiency. Professor Daley received his PhD from Stanford University’s Graduate School of Business.