E-Matura | LiC | Multiple Choice | B2 | Name your firm after yourself

A good business name can be pricey. An entrepreneur (0) who searchedwho huntsseekinglooking for the perfect one can hire a naming agency to offer ideas, but that can cost tens of thousands of dollars.

That may explain why many founders follow the (1) planmodelexampleway of the current American president and name their business after themselves.

A recent article by academics from the Fuqua School of Business at Duke University in North Carolina suggests that (2) making it likewisesuch behaviora similar actiondoing so not only saves money –

it can also (3) promoterise uplift upboost profits.

The study looked at small businesses in Western Europe. It relied on a sample of almost two million firms, data for which are contained in Amadeus, a commercial database. Firms in the sample (4) tendedmeantsaidintended to be, on average, fairly young, with few shareholders and employees.

Checking the surnames of the largest shareholders, the authors found that 19% of firms were named after their founders. After accounting for other (5) partselementsqualitiesfactors, firms that bore their largest shareholder’s name enjoyed a return on assets (ROA) that was three percentage points higher than other companies.

The authors explain this (6) by notingby noticingwith provingwith saying that if you name a firm after yourself, you send a signal.

You believe your product is good enough to stake your own reputation on it, (7) nevernotnorneither just that of your company.

If you fail, you will remain (8) tied upbeing boundpersonally connectedprivately associated to that failure for the rest of your career.

The authors suggest that customers receive this signal and reward firms (9) accordinglyrespectivelyrelativelycomparatively .

This hypothesis was tested by comparing different types of names. Eponymous founders with a common name will be less closely identified with their firms. So the signal is weaker. The data show that the ROA premium is (10) absolutelyindeedsignificantquite lower for firms named after founders with common names.

Might not substandard entrepreneurs cheat by naming their firms after themselves? They could, but the short-term benefits of cheating (11) must be weighedwill be putshould be heldmight be measuredagainst the long-term reputational damage of being found out. It is easier to choose a different name when starting a firm than to change your own if it fails.