Samhallsbyggnadsbolaget i Norden

The above title (and no, I am not going to write it again) is the name of a Swedish real estate company specialised in social housing. It has a market cap of $3.9bn and thus appears on my stock screens from time to time. I have yet to meet a non-Swedish speaker who is able to pronounce its name…

And apparently, that might be a problem for the company since investors have higher return expectations and are more optimistic about the return prospects of companies with easily pronounceable names. A team from Radboud University examined the perception of 653 business and economics students at their university (for reference, Radboud University is not only semi-hard to pronounce, but situated in the Netherlands).

In a first setup, they explained to a random selection of these students that they wanted to test differences in return expectations between companies with names that are easy or difficult to pronounce.

Then, in a second setup, they gave another random set of students the same task but did not explain the purpose of the experiment so as to not create any demand effect where students think they have to please the experimenter.

The third group of students was given a list of stocks and were told explicitly that these stocks were randomly assigned difficult and easy-to-pronounce names. Then the students had to guess future returns once again.

Finally, in the fourth setup, students were informed that these stocks had randomly assigned names, and the random price charts for each stock were shown before students had to guess future returns.

The chart below shows the return expectation in each of the four setups. It is mind-blowing that in almost all cases students had higher return expectations for stocks with easy-to-pronounce names. There is no fundamental information in any of these artificial company names, but having an easier time pronouncing a company’s name creates a feeling of familiarity, mostly because these names are easier to remember. And with that feeling of familiarity comes a more positive attitude towards these stocks and higher return expectations. It is only when price charts are provided as an additional stimulus that this effect disappears, indicating that this visual information overpowers the familiarity effect of company names.

So, the folks at the company in the title might think about a name change to improve their share price (which hasn’t been great in recent months). May I suggest the initial letter in each of the three parts of the name?

Return expectations for easy and difficult-to-pronounce shares

Source: Fenneman et al. (2022)