Attention to Inattention: Evidence from Private Acquisitions

Abstract

When a new blockholder (NewB) is expected to form in private firm acquisitions paid with stock, investors react strongly to the perceived certification and monitoring effects. The salience of a NewB, however, induces investor inattention to other information, opening doors for managerial opportunism. Financially weak acquirers pay attention to inattention and sneak in speculative deals. Our findings support these hypotheses. First, acquirers’ announcement-period abnormal returns are significantly associated with the presence of a NewB, but not with acquirers’ financial health that indicates managerial opportunism. Second, the NewB acquirers are financially weak. Finally, they underperform in the long run.