A Question of Identity

A STUDY OF OVER 2,000 ITALIAN FIRMS HIGHLIGHTS THE PHENOMENON OF EPONYMY AND HOW IT HAS POSITIVE EFFECTS ON A COMPANY'S REPUTATION AND TRANSPARENCY. EVEN WHEN GENERATIONS CHANGE

by Alessandro Minichilli e Annalisa Prencipe, associate professor at Department of Management Technology and full professor at Department of Accounting

Armani, Barilla, Ferrero, Illy, and that's for starters. Many are the successful Italian brands that that bear the name of the founder. This is a complex choice a fledgling company needs to make, in many respects. Choosing the right name for a business is not a decision to be taken lightly. Giving the the firm the name of the entrepreneur at the time of its foundation - a phenomenon known as eponymy - establishes a direct, often unique, link between the former and the latter. This bond is stronger, the rarer the name is. Rarity makes the name more easily identifiable and more directly associated with the founder or his/her family.
Eponymy generates a bond between the entrepreneur and the company that is not only emotional, but also reputational. The success or failure of the company, as well as its actions, tend to affect the reputation and social recognition of the entrepreneur and his/her family.

Starting from these premises, in a recent study conducted on a sample of over 2,000 Italian large private companies over the 2003-2013 period by Alessandro Minichilli (Bocconi University) and Annalisa Prencipe (Bocconi University), together with Gianfranco Siciliano (China Europe International Business School) and Suresh Radhakrishnan (University of Texas at Dallas), the authors have made an analysis of the phenomenon of eponymy and its link with transparency in disclosing financial statements.
In the sample analyzed, about 33% of companies are eponymous, proving that giving one's name to a company is a rather widespread phenomenon in Italy, a country that is characterized by the highest variety of last names in the world (over 350,000). In line with previous studies, the authors note that - compared to non-eponymous companies - firms that bear the name of their founder tend to have a better performance in earnings. This first evidence is in line with the hypothesis that entrepreneurs who have greater confidence in their ability to succeed are more likely to give their name to the company in the startup phase. This confidence then seems to actually translate into better performance, also beyond the first years of a family company's life.

After isolating the effect of better performance for eponymous firms, the study also shows that, with a number of other characteristics being equal, eponymous firms are less likely to implement aggressive financial budget policies or, more generally, accounting policies that are potentially misleading for the decisions of users of financial statements such as banks, suppliers, customers or minority shareholders. These results also show that eponymous companies are less frequently subject to sanctions by tax authorities for errors or manipulations in compiling financial statements.

The authors argue that these effects are due to greater attention on the part of eponymous entrepreneurs and/or their families towards the reputational consequences that arise from opportunistic or incorrect behavior in financial reporting. As confirmation of this thesis, the study reveals how the positive effect of eponymy on financial information transparency is greater in cases where the family name is rarer and the company has greater visibility in the media, factors that can amplify the negative reputational effects on entrepreneurs or their families deriving from misconduct on the part of the same-name company. The observed effects seem to persist even in cases where the company is run by generations that have succeeded the founder. This evidence suggests that reputational effects deriving from the eponymy continue to have a positive impact on corporate transparency, even regardless of the entrepreneurial qualities of the founder.