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

Published online by Cambridge University Press:  14 September 2018

Erik Lie
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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.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 54 , Issue 3 , June 2019 , pp. 1347 - 1369
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2018 

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Footnotes

1

I am grateful for comments and suggestions from Jarrad Harford (the editor), David Hirshleifer (the referee), and seminar participants at Purdue University, Shanghai Advanced Institute of Finance, the University of Iowa, and the University of Oklahoma.

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