Investor Inattention and Stock Prices: Evidence from Acquisitions with a Choice of Payment Type

Erik Lie

Journal of Financial and Quantitative Analysis, 2019, vol. 54, issue 3, 1347-1369

Abstract: I report evidence that shareholders holding a combined 15% of shares are inattentive or partially inattentive when confronted with the decision to receive cash or stock for their shares in acquisitions. The average cost of such inattention is 2%, and it increases to 6% for the tertile of transactions with the greatest difference between the cash and stock values. Most interestingly, I show that inattention affects stock prices because attentive shareholders bid up the stock price in anticipation of a wealth transfer from inattentive shareholders.

Date: 2019
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Persistent link: https://EconPapers.repec.org/RePEc:cup:jfinqa:v:54:y:2019:i:03:p:1347-1369_00

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